Intel Corporation's Low P/S No Reason For Excitement

With a price-to-sales (or "P/S") ratio of 2.7x Intel Corporation (NASDAQ:INTC) may be sending bullish signals at the moment, given that almost half of all the Semiconductor companies in the United States have P/S ratios greater than 3.9x and even P/S higher than 9x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Intel Performed Recently?

Intel could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

With a price-to-sales (or "P/S") ratio of 2.7x Intel Corporation (NASDAQ:INTC) may be sending bullish signals at the moment, given that almost half of all the Semiconductor companies in the United States have P/S ratios greater than 3.9x and even P/S higher than 9x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Intel Performed Recently?

Intel could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Intel?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Intel's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. The last three years don't look nice either as the company has shrunk revenue by 30% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 9.3% each year as estimated by the analysts watching the company. With the industry predicted to deliver 27% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Intel'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 We Can Learn From Intel's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Intel 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Intel you should know about.

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.