You may think that with a price-to-sales (or "P/S") ratio of 42.3x Intchains Group Limited (NASDAQ:ICG) is a stock to avoid completely, seeing as almost half of all the Semiconductor companies in the United States have P/S ratios under 4.3x and even P/S lower than 2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
What Does Intchains Group's Recent Performance Look Like?
For example, consider that Intchains Group's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for Intchains Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, Intchains Group would need to produce outstanding growth that's well in excess of the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 83%. Still, the latest three year period has seen an excellent 51% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
This is in contrast to the rest of the industry, which is expected to grow by 47% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we find it concerning that Intchains Group is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Bottom Line On Intchains Group's P/S
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
The fact that Intchains Group currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Intchains Group you should know about.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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你可能會認爲,市銷率(或 “市盈率”)爲42.3倍的Intchains Group Limited(納斯達克股票代碼:ICG)是值得完全避免的股票,因爲美國幾乎有一半的半導體公司的市盈率低於4.3倍,即使市盈率低於2倍也不是不尋常的。但是,我們需要更深入地挖掘,以確定市銷售率大幅上升是否有合理的依據。