China Wafer Level CSP Co., Ltd. (SHSE:603005) Looks Just Right With A 37% Price Jump

China Wafer Level CSP Co., Ltd. (SHSE:603005) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 6.0% isn't as impressive.

After such a large jump in price, China Wafer Level CSP's price-to-sales (or "P/S") ratio of 16.3x might make it look like a strong sell right now compared to other companies in the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.2x and even P/S below 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for China Wafer Level CSP

How China Wafer Level CSP Has Been Performing

While the industry has experienced revenue growth lately, China Wafer Level CSP's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think China Wafer Level CSP's future stacks up against the industry? In that case, our free report is a great place to start.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like China Wafer Level CSP's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 28% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 52% over the next year. With the industry only predicted to deliver 36%, the company is positioned for a stronger revenue result.

With this information, we can see why China Wafer Level CSP is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does China Wafer Level CSP's P/S Mean For Investors?

Shares in China Wafer Level CSP have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into China Wafer Level CSP 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for China Wafer Level CSP you should be aware of.

If you're unsure about the strength of China Wafer Level CSP'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.