Vanchip (Tianjin) Technology Co., Ltd.'s (SHSE:688153) 27% Share Price Surge Not Quite Adding Up

Vanchip (Tianjin) Technology Co., Ltd. (SHSE:688153) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Vanchip (Tianjin) Technology's price-to-sales (or "P/S") ratio of 6.5x is worth a mention when the median P/S in China's Semiconductor industry is similar at about 7.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Vanchip (Tianjin) Technology

How Has Vanchip (Tianjin) Technology Performed Recently?

Recent times have been advantageous for Vanchip (Tianjin) Technology as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vanchip (Tianjin) Technology.

Is There Some Revenue Growth Forecasted For Vanchip (Tianjin) Technology?

In order to justify its P/S ratio, Vanchip (Tianjin) Technology would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 35% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 18% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 31% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 42%, which is noticeably more attractive.

In light of this, it's curious that Vanchip (Tianjin) Technology's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Vanchip (Tianjin) Technology's P/S

Its shares have lifted substantially and now Vanchip (Tianjin) Technology's P/S is back within range of the industry median. 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 at the analysts forecasts of Vanchip (Tianjin) Technology's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It is also worth noting that we have found 3 warning signs for Vanchip (Tianjin) Technology (1 is a bit concerning!) that you need to take into consideration.

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.