Shanghai Anlogic Infotech Co., Ltd.'s (SHSE:688107) Shareholders Might Be Looking For Exit

Shanghai Anlogic Infotech Co., Ltd.'s (SHSE:688107) price-to-sales (or "P/S") ratio of 15.6x 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.

See our latest analysis for Shanghai Anlogic Infotech

How Shanghai Anlogic Infotech Has Been Performing

While the industry has experienced revenue growth lately, Shanghai Anlogic Infotech'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.. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Anlogic Infotech.

How Is Shanghai Anlogic Infotech's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Shanghai Anlogic Infotech'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 15%. Even so, admirably revenue has lifted 198% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 28% over the next year. Meanwhile, the rest of the industry is forecast to expand by 35%, which is noticeably more attractive.

In light of this, it's alarming that Shanghai Anlogic Infotech's P/S sits above the majority of other companies. 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.

What Does Shanghai Anlogic Infotech's P/S Mean For Investors?

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.

We've concluded that Shanghai Anlogic Infotech currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Shanghai Anlogic Infotech with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.