Smartsens Technology (Shanghai) Co., Ltd.'s (SHSE:688213) Price Is Out Of Tune With Revenues

There wouldn't be many who think Smartsens Technology (Shanghai) Co., Ltd.'s (SHSE:688213) price-to-sales (or "P/S") ratio of 5.6x is worth a mention when the median P/S for the Semiconductor industry in China is similar at about 6.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Smartsens Technology (Shanghai)

What Does Smartsens Technology (Shanghai)'s Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Smartsens Technology (Shanghai) has been doing relatively well. 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 Smartsens Technology (Shanghai).

How Is Smartsens Technology (Shanghai)'s Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Smartsens Technology (Shanghai)'s is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 103% gain to the company's top line. Pleasingly, revenue has also lifted 97% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 38% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 49% growth forecast for the broader industry.

With this in mind, we find it intriguing that Smartsens Technology (Shanghai)'s P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at the analysts forecasts of Smartsens Technology (Shanghai)'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's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Smartsens Technology (Shanghai), and understanding them should be part of your investment process.

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.