Despite an already strong run, Everspin Technologies, Inc. (NASDAQ:MRAM) shares have been powering on, with a gain of 25% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 8.7% isn't as attractive.

Even after such a large jump in price, Everspin Technologies' price-to-sales (or "P/S") ratio of 3.2x might still make it look like a buy right now compared to the Semiconductor industry in the United States, where around half of the companies have P/S ratios above 4x and even P/S above 11x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Everspin Technologies Has Been Performing

Everspin Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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Is There Any Revenue Growth Forecasted For Everspin Technologies?

In order to justify its P/S ratio, Everspin Technologies would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. As a result, revenue from three years ago have also fallen 17% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 14% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 30% growth forecast for the broader industry.

In light of this, it's understandable that Everspin Technologies' 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.

The Key Takeaway

The latest share price surge wasn't enough to lift Everspin Technologies' P/S close to the industry median. 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 Everspin Technologies 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks.

If you're unsure about the strength of Everspin Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.