BIWIN Storage Technology Co., Ltd. (SHSE:688525) Held Back By Insufficient Growth Even After Shares Climb 30%

The BIWIN Storage Technology Co., Ltd. (SHSE:688525) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 76% in the last year.

In spite of the firm bounce in price, BIWIN Storage Technology's price-to-sales (or "P/S") ratio of 5.1x might still make it look like a buy right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios above 7.8x and even P/S above 14x 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 limited.

See our latest analysis for BIWIN Storage Technology

What Does BIWIN Storage Technology's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, BIWIN Storage Technology has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like BIWIN Storage Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 122%. The latest three year period has also seen an excellent 149% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 50% growth forecast for the broader industry.

In light of this, it's understandable that BIWIN Storage Technology's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On BIWIN Storage Technology's P/S

Despite BIWIN Storage Technology's share price climbing recently, its P/S still lags most other companies. 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 BIWIN Storage Technology maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for BIWIN Storage Technology (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on BIWIN Storage Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.