Subdued Growth No Barrier To Wuxi Chipown Micro-electronics limited (SHSE:688508) With Shares Advancing 35%

Wuxi Chipown Micro-electronics limited (SHSE:688508) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Wuxi Chipown Micro-electronics' price-to-sales (or "P/S") ratio of 6.1x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in China, where the median P/S ratio is around 6.2x. 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.

View our latest analysis for Wuxi Chipown Micro-electronics

How Has Wuxi Chipown Micro-electronics Performed Recently?

There hasn't been much to differentiate Wuxi Chipown Micro-electronics' and the industry's revenue growth lately. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could 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 Wuxi Chipown Micro-electronics will help you uncover what's on the horizon.

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

Wuxi Chipown Micro-electronics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. The strong recent performance means it was also able to grow revenue by 42% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 25% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 36% growth forecast for the broader industry.

In light of this, it's curious that Wuxi Chipown Micro-electronics' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Wuxi Chipown Micro-electronics' P/S Mean For Investors?

Wuxi Chipown Micro-electronics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of Wuxi Chipown Micro-electronics' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Wuxi Chipown Micro-electronics 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.