Benign Growth For Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) Underpins Stock's 35% Plummet

Unfortunately for some shareholders, the Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) share price has dived 35% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 13% in that time.

Since its price has dipped substantially, Alpha and Omega Semiconductor may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 2.8x and even P/S higher than 7x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Alpha and Omega Semiconductor

What Does Alpha and Omega Semiconductor's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Alpha and Omega Semiconductor has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Alpha and Omega Semiconductor?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.1% last year. Still, lamentably revenue has fallen 8.3% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 5.2% during the coming year according to the three analysts following the company. With the industry predicted to deliver 36% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Alpha and Omega Semiconductor's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Alpha and Omega Semiconductor's P/S

The southerly movements of Alpha and Omega Semiconductor's shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Alpha and Omega Semiconductor's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Alpha and Omega Semiconductor, and understanding should be part of your investment process.

If you're unsure about the strength of Alpha and Omega 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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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.