Shareholders Should Be Pleased With Credo Technology Group Holding Ltd's (NASDAQ:CRDO) Price
Credo Technology Group Holding Ltd's (NASDAQ:CRDO) price-to-sales (or "P/S") ratio of 7x may look like a poor investment opportunity when you consider close to half the companies in the Semiconductor industry in the United States have P/S ratios below 3.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
See our latest analysis for Credo Technology Group Holding
What Does Credo Technology Group Holding's P/S Mean For Shareholders?
Recent times have been advantageous for Credo Technology Group Holding as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Credo Technology Group Holding.
Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, Credo Technology Group Holding would need to produce outstanding growth that's well in excess of the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 115%. The strong recent performance means it was also able to grow revenue by 252% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 25% per year during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader industry.
In light of this, it's understandable that Credo Technology Group Holding's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What Does Credo Technology Group Holding's P/S Mean For Investors?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our look into Credo Technology Group Holding shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Credo Technology Group Holding that you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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