Optimistic Investors Push ASR Microelectronics Co., Ltd. (SHSE:688220) Shares Up 37% But Growth Is Lacking

ASR Microelectronics Co., Ltd. (SHSE:688220) shares have continued their recent momentum with a 37% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

Following the firm bounce in price, ASR Microelectronics may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 9.4x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 7.2x and even P/S lower than 3x aren't out of the ordinary. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for ASR Microelectronics

How ASR Microelectronics Has Been Performing

ASR Microelectronics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as ASR Microelectronics' is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The strong recent performance means it was also able to grow revenue by 82% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 27% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 50%, which is noticeably more attractive.

With this information, we find it concerning that ASR Microelectronics is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

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

The large bounce in ASR Microelectronics' shares has lifted the company's P/S handsomely. 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.

We've concluded that ASR Microelectronics currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

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.