ASR Microelectronics Co., Ltd. (SHSE:688220) Stock Rockets 45% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, ASR Microelectronics Co., Ltd. (SHSE:688220) shares have been powering on, with a gain of 45% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that ASR Microelectronics' price-to-sales (or "P/S") ratio of 6.9x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in China, where the median P/S ratio is around 7.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for ASR Microelectronics

What Does ASR Microelectronics' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, ASR Microelectronics has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think ASR Microelectronics' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like ASR Microelectronics' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The latest three year period has also seen an excellent 82% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the three analysts following the company. With the industry predicted to deliver 49% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that ASR Microelectronics is trading at a fairly similar P/S compared to the industry. 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

ASR Microelectronics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given that ASR Microelectronics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 1 warning sign for ASR Microelectronics that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.