Revenues Working Against Chipsea Technologies (shenzhen) Corp.'s (SHSE:688595) Share Price Following 25% Dive

Chipsea Technologies (shenzhen) Corp. (SHSE:688595) shares have had a horrible month, losing 25% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 26% in that time.

After such a large drop in price, Chipsea Technologies (shenzhen) may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 4.8x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 6.5x and even P/S higher than 11x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Chipsea Technologies (shenzhen)

How Chipsea Technologies (shenzhen) Has Been Performing

With revenue growth that's superior to most other companies of late, Chipsea Technologies (shenzhen) has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. 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 out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Chipsea Technologies (shenzhen) will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, Chipsea Technologies (shenzhen) would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. The latest three year period has also seen a 16% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 41% during the coming year according to the three analysts following the company. With the industry predicted to deliver 54% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Chipsea Technologies (shenzhen)'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.

What Does Chipsea Technologies (shenzhen)'s P/S Mean For Investors?

Chipsea Technologies (shenzhen)'s recently weak share price has pulled its P/S back below other Semiconductor companies. 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.

We've established that Chipsea Technologies (shenzhen) maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Chipsea Technologies (shenzhen) is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Chipsea Technologies (shenzhen), 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.