Wuxi Taiji Industry Limited Corporation's (SHSE:600667) Share Price Boosted 36% But Its Business Prospects Need A Lift Too

Wuxi Taiji Industry Limited Corporation (SHSE:600667) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 4.0% isn't as impressive.

Although its price has surged higher, Wuxi Taiji Industry Limited may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 6.2x and even P/S higher than 11x aren't out of the ordinary. 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.

View our latest analysis for Wuxi Taiji Industry Limited

How Has Wuxi Taiji Industry Limited Performed Recently?

While the industry has experienced revenue growth lately, Wuxi Taiji Industry Limited's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. 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.

Want the full picture on analyst estimates for the company? Then our free report on Wuxi Taiji Industry Limited will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, Wuxi Taiji Industry Limited would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 4.5% decrease to the company's top line. Even so, admirably revenue has lifted 89% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 24% as estimated by the one analyst watching the company. 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 Wuxi Taiji Industry Limited'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.

The Bottom Line On Wuxi Taiji Industry Limited's P/S

Shares in Wuxi Taiji Industry Limited have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Wuxi Taiji Industry Limited's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Wuxi Taiji Industry Limited that you should be aware of.

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).

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.