Nexchip Semiconductor Corporation's (SHSE:688249) Price Is Right But Growth Is Lacking After Shares Rocket 31%

Nexchip Semiconductor Corporation (SHSE:688249) shares have continued their recent momentum with a 31% 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.

Although its price has surged higher, Nexchip Semiconductor may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.5x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 7.4x and even P/S higher than 13x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Nexchip Semiconductor

How Nexchip Semiconductor Has Been Performing

Nexchip Semiconductor certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite 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 Nexchip Semiconductor.

Do Revenue Forecasts Match The Low P/S Ratio?

Nexchip Semiconductor's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 37% gain to the company's top line. The latest three year period has also seen an excellent 66% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 35% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 42%, which is noticeably more attractive.

With this in consideration, its clear as to why Nexchip Semiconductor's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Nexchip Semiconductor's P/S Mean For Investors?

Despite Nexchip Semiconductor's share price climbing recently, its P/S still lags most other companies. 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.

As expected, our analysis of Nexchip Semiconductor's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Nexchip Semiconductor you should be aware of, and 1 of them is a bit unpleasant.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.