Credo Technology Group Holding Ltd (NASDAQ:CRDO) shareholders that were waiting for something to happen have been dealt a blow with a 45% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 87% in the last year.

Although its price has dipped substantially, when almost half of the companies in the United States' Semiconductor industry have price-to-sales ratios (or "P/S") below 3.3x, you may still consider Credo Technology Group Holding as a stock not worth researching with its 21.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Credo Technology Group Holding

What Does Credo Technology Group Holding's Recent Performance Look Like?

Credo Technology Group Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Credo Technology Group Holding's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Credo Technology Group Holding?

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

If we review the last year of revenue growth, the company posted a terrific increase of 97%. Pleasingly, revenue has also lifted 269% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 41% per year over the next three years. 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 Credo Technology Group Holding is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Credo Technology Group Holding's P/S Mean For Investors?

Credo Technology Group Holding's shares may have suffered, but its P/S remains high. 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.

Our look into Credo Technology Group Holding shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Credo Technology Group Holding, and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.