ASR Microelectronics Co., Ltd.'s (SHSE:688220) 27% Price Boost Is Out Of Tune With Revenues

ASR Microelectronics Co., Ltd. (SHSE:688220) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about ASR Microelectronics' P/S ratio of 5x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in China is also close to 6.2x. 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.

View our latest analysis for ASR Microelectronics

What Does ASR Microelectronics' Recent Performance Look Like?

Recent times have been advantageous for ASR Microelectronics 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is ASR Microelectronics' Revenue Growth Trending?

In order to justify its P/S ratio, ASR Microelectronics 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 51% last year. The strong recent performance means it was also able to grow revenue by 77% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 23% as estimated by the three analysts watching the company. With the industry predicted to deliver 36% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that ASR Microelectronics' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. 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 Final Word

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 Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for ASR Microelectronics with six simple checks.

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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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.