SiTime Corporation (NASDAQ:SITM) looks right on target with a 27% price jump

SiTime Corporation (NASDAQ:SITM) shares have continued their recent momentum with a 27% gain in the last month alone. Last month capped a massive 100% increase over the last year.

As the price has risen, SiTime is currently potentially sending strong sell signals with a price-to-sales ratio (or “P/S”) of 28.7x considering almost half of the companies in the semiconductor industry in the industry are located in the US Price-to-book ratios below 4.2x and even price-to-book ratios below 1.7x are not uncommon. However, the P/S may be quite high for a reason and further research is needed to determine whether it is justified.

Check out our latest analysis for SiTime

How has SiTime developed recently?

Recent times haven’t been great for SiTime, with revenue growing slower than most other companies. It is possible that the market is expecting a trend reversal in future sales development, which has led to an increase in the P/E ratio. However, if this isn’t the case, investors could get caught paying too much for the stock.

If you want to see what analysts are predicting for the future, you should check out our free Report on SiTime.

Are the sales forecasts consistent with the high price-to-earnings ratio?

To justify its P/E ratio, SiTime would need to deliver outstanding growth well above the industry.

Looking back, last year brought a decent increase in company sales of 9.0%. However, overall sales are unfortunately down 3.5% year-on-year, which is disappointing. Therefore, it’s fair to say that revenue growth has been undesirable for the company recently.

Looking ahead, estimates from the company’s five analysts suggest revenue is expected to grow 30% per year over the next three years. The rest of the industry, on the other hand, is only expected to grow by 25% per year, which is significantly less attractive.

With this in mind, it’s understandable that SiTime’s P/S is higher than most other companies. Apparently shareholders aren’t interested in selling off something that might be aimed at a more prosperous future.

The conclusion to SiTime’s P/S

The sharp rise in the share price has also led to a jump in SiTime’s P/E ratio. Generally, we limit our use of the price-to-sales ratio to determining what the market thinks about the overall health of a company.

Our look at SiTime shows that the P/E ratio remains high due to strong future sales. At this point, investors believe the potential for earnings deterioration to be quite low, justifying the elevated P/E ratio. Unless these conditions change, they will continue to provide strong support for the share price.

Before you take the next step, you should be clear about this 3 warning signs for SiTime that we uncovered.

If these Risks cause you to reconsider your opinion of SiTimeExplore our interactive list of high-quality stocks to get an idea of ​​what else is out there.

Do you have feedback on this article? Worried about the content? Get in touch directly with us. Alternatively, you can also send an email to editor-team (at) simplywallst.com.

This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.