Shanghai New Vision Microelectronics Co., Ltd's (SHSE:688593) Popularity With Investors Is Clear

Shanghai New Vision Microelectronics Co., Ltd's (SHSE:688593) price-to-sales (or "P/S") ratio of 18.3x might make it look like a strong sell right now compared to 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Shanghai New Vision Microelectronics

How Shanghai New Vision Microelectronics Has Been Performing

Recent times haven't been great for Shanghai New Vision Microelectronics as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Shanghai New Vision Microelectronics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shanghai New Vision Microelectronics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Shanghai New Vision Microelectronics' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 3.1%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 90% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 45%, which is noticeably less attractive.

With this information, we can see why Shanghai New Vision Microelectronics is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shanghai New Vision Microelectronics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Shanghai New Vision Microelectronics with six simple checks will allow you to discover any risks that could be an issue.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.