It's not a stretch to say that indie Semiconductor, Inc.'s (NASDAQ:INDI) price-to-sales (or "P/S") ratio of 3.9x right now seems quite "middle-of-the-road" for companies in the Semiconductor industry in the United States, where the median P/S ratio is around 4.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

How Has indie Semiconductor Performed Recently?

With revenue growth that's superior to most other companies of late, indie Semiconductor has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For indie Semiconductor?

In order to justify its P/S ratio, indie Semiconductor would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 101% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 34% each year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 27% per year, which is noticeably less attractive.

In light of this, it's curious that indie Semiconductor's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

We've established that indie Semiconductor currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for indie Semiconductor that you should be aware of.

If you're unsure about the strength of indie Semiconductor's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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