Why Investors Shouldn't Be Surprised By Alpha and Omega Semiconductor Limited's (NASDAQ:AOSL) 28% Share Price Plunge

Unfortunately for some shareholders, the Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) share price has dived 28% in the last thirty days, prolonging recent pain. Longer-term, the stock has been solid despite a difficult 30 days, gaining 21% in the last year.

Since its price has dipped substantially, Alpha and Omega Semiconductor may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 3.4x and even P/S higher than 9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Alpha and Omega Semiconductor

What Does Alpha and Omega Semiconductor's P/S Mean For Shareholders?

Recent times haven't been great for Alpha and Omega Semiconductor as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

The only time you'd be truly comfortable seeing a P/S as depressed as Alpha and Omega Semiconductor's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.1% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 8.3% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 5.2% over the next year. Meanwhile, the rest of the industry is forecast to expand by 36%, which is noticeably more attractive.

In light of this, it's understandable that Alpha and Omega Semiconductor's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Alpha and Omega Semiconductor's P/S Mean For Investors?

Alpha and Omega Semiconductor's P/S looks about as weak as its stock price lately. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Alpha and Omega Semiconductor maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Alpha and Omega Semiconductor that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.