Yahoo Finance GLOBALFOUNDRIES Inc.'s (NASDAQ:GFS) Share Price Could Signal Some Risk
It's not a stretch to say that GLOBALFOUNDRIES Inc.'s (NASDAQ:GFS) 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 3.3x. 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.
Check out our latest analysis for GLOBALFOUNDRIES
How Has GLOBALFOUNDRIES Performed Recently?
Recent times have been advantageous for GLOBALFOUNDRIES as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Keen to find out how analysts think GLOBALFOUNDRIES' future stacks up against the industry? In that case, our free report is a great place to start.
Is There Some Revenue Growth Forecasted For GLOBALFOUNDRIES?
In order to justify its P/S ratio, GLOBALFOUNDRIES would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 23%. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 6.5% each year as estimated by the analysts watching the company. With the industry predicted to deliver 11% growth per annum, the company is positioned for a weaker revenue result.
With this in mind, we find it intriguing that GLOBALFOUNDRIES' 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. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Final Word
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 at the analysts forecasts of GLOBALFOUNDRIES' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for GLOBALFOUNDRIES (1 is significant) you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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