There's Reason For Concern Over China Wafer Level CSP Co., Ltd.'s (SHSE:603005) Price

China Wafer Level CSP Co., Ltd.'s (SHSE:603005) price-to-sales (or "P/S") ratio of 12.7x might make it look like a strong sell right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.4x and even P/S below 3x 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 so lofty.

Check out our latest analysis for China Wafer Level CSP

How Has China Wafer Level CSP Performed Recently?

While the industry has experienced revenue growth lately, China Wafer Level CSP's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as China Wafer Level CSP's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 24%. The last three years don't look nice either as the company has shrunk revenue by 7.2% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 37% as estimated by the one analyst watching the company. That's shaping up to be similar to the 35% growth forecast for the broader industry.

With this in consideration, we find it intriguing that China Wafer Level CSP's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From China Wafer Level CSP's P/S?

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.

Analysts are forecasting China Wafer Level CSP's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you settle on your opinion, we've discovered 2 warning signs for China Wafer Level CSP that 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.

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.