Why We're Not Concerned Yet About SiTime Corporation's (NASDAQ:SITM) 27% Share Price Plunge

To the annoyance of some shareholders, SiTime Corporation (NASDAQ:SITM) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 74% in the last year.

Although its price has dipped substantially, you could still be forgiven for thinking SiTime is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 15.1x, considering almost half the companies in the United States' Semiconductor industry have P/S ratios below 2.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for SiTime

What Does SiTime's Recent Performance Look Like?

SiTime 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 recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on SiTime will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as SiTime's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 41% last year. Still, revenue has fallen 7.4% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 27% each year during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 23% per annum growth forecast for the broader industry.

With this information, we can see why SiTime is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does SiTime's P/S Mean For Investors?

SiTime's shares may have suffered, but its P/S remains high. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into SiTime shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware SiTime is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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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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.