Optimistic Investors Push BIWIN Storage Technology Co., Ltd. (SHSE:688525) Shares Up 28% But Growth Is Lacking

BIWIN Storage Technology Co., Ltd. (SHSE:688525) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 116% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about BIWIN Storage Technology's P/S ratio of 5.5x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in China is also close to 6.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for BIWIN Storage Technology

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

BIWIN Storage Technology has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on BIWIN Storage Technology's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For BIWIN Storage Technology?

The only time you'd be comfortable seeing a P/S like BIWIN Storage Technology's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The latest three year period has also seen an excellent 120% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 35% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that BIWIN Storage Technology's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From BIWIN Storage Technology's P/S?

Its shares have lifted substantially and now BIWIN Storage Technology's P/S is back within range of the industry median. 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 examination of BIWIN Storage Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for BIWIN Storage Technology that 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.