Yuanjie Semiconductor Technology Co., Ltd. (SHSE:688498) Shares Slammed 29% But Getting In Cheap Might Be Difficult Regardless

Yuanjie Semiconductor Technology Co., Ltd. (SHSE:688498) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 18% share price drop.

Although its price has dipped substantially, Yuanjie Semiconductor Technology's price-to-sales (or "P/S") ratio of 48x might still make it look like a strong sell right now compared to other companies in the Semiconductor industry in China, where around half of the companies have P/S ratios below 7.2x and even P/S below 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Yuanjie Semiconductor Technology

How Yuanjie Semiconductor Technology Has Been Performing

With revenue growth that's superior to most other companies of late, Yuanjie Semiconductor Technology has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Yuanjie Semiconductor Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Still, revenue has fallen 1.2% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 80% over the next year. That's shaping up to be materially higher than the 45% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Yuanjie Semiconductor Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

A significant share price dive has done very little to deflate Yuanjie Semiconductor Technology's very lofty P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Yuanjie Semiconductor Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 1 warning sign for Yuanjie Semiconductor Technology that we have uncovered.

If you're unsure about the strength of Yuanjie Semiconductor Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.