Giga Device Semiconductor Inc.'s (SHSE:603986) 36% Price Boost Is Out Of Tune With Revenues

Giga Device Semiconductor Inc. (SHSE:603986) shareholders have had their patience rewarded with a 36% share price jump in the last month. The last month tops off a massive increase of 117% in the last year.

Following the firm bounce in price, Giga Device Semiconductor may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 12.8x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 6.8x and even P/S lower than 3x 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 lofty.

View our latest analysis for Giga Device Semiconductor

How Giga Device Semiconductor Has Been Performing

With revenue growth that's superior to most other companies of late, Giga Device Semiconductor has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Giga Device Semiconductor will help you uncover what's on the horizon.

How Is Giga Device Semiconductor's Revenue Growth Trending?

Giga Device Semiconductor's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Still, revenue has fallen 8.3% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 27% over the next year. With the industry predicted to deliver 49% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Giga Device Semiconductor is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Giga Device Semiconductor's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Giga Device Semiconductor, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 2 warning signs for Giga Device Semiconductor that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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