indie Semiconductor, Inc. (NASDAQ:INDI) shares have had a really impressive month, gaining 29% after a shaky period beforehand.    Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.  

Although its price has surged higher, there still wouldn't be many who think indie Semiconductor's price-to-sales (or "P/S") ratio of 5.3x is worth a mention when the median P/S in the United States' Semiconductor industry is similar at about 5.2x.  While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.    

NasdaqCM:INDI Price to Sales Ratio vs Industry June 11th 2024

How indie Semiconductor Has Been Performing

indie Semiconductor could be doing better as it's been growing revenue less than most other companies lately.   It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling.  However, if this isn't the case, investors might get caught out paying too much for the stock.    

Keen to find out how analysts think indie Semiconductor's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?  

The only time you'd be comfortable seeing a P/S like indie Semiconductor's is when the company's growth is tracking the industry closely.  

Taking a look back first, we see that the company grew revenue by an impressive 82% last year.    Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth.  Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.  

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 26% over the next year.  With the industry predicted to deliver 40% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that indie Semiconductor's P/S is closely matching its industry peers.  It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock.  Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.  

What We Can Learn From indie Semiconductor's P/S?

indie Semiconductor appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry      We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

When you consider that indie Semiconductor's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio.  When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower.  This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for indie Semiconductor that you need to be mindful of.  

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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