Guangzhou Anyka Microelectronics Co., Ltd. (SHSE:688620) Stocks Shoot Up 26% But Its P/S Still Looks Reasonable

Guangzhou Anyka Microelectronics Co., Ltd. (SHSE:688620) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

Following the firm bounce in price, Guangzhou Anyka Microelectronics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 11.6x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 7.4x and even P/S lower than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Guangzhou Anyka Microelectronics

What Does Guangzhou Anyka Microelectronics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Guangzhou Anyka Microelectronics' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Guangzhou Anyka Microelectronics will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guangzhou Anyka Microelectronics' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.9% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 48% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 43% growth forecast for the broader industry.

In light of this, it's understandable that Guangzhou Anyka Microelectronics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Guangzhou Anyka Microelectronics have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Guangzhou Anyka Microelectronics maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Guangzhou Anyka Microelectronics (at least 1 which is significant), and understanding them should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.