After Leaping 37% Chengdu Sino-Microelectronics Tech. Co., Ltd. (SHSE:688709) Shares Are Not Flying Under The Radar

Despite an already strong run, Chengdu Sino-Microelectronics Tech. Co., Ltd. (SHSE:688709) shares have been powering on, with a gain of 37% in the last thirty days. The last 30 days bring the annual gain to a very sharp 54%.

Following the firm bounce in price, Chengdu Sino-Microelectronics Tech's price-to-sales (or "P/S") ratio of 31.5x might make it look like a strong sell right now compared to other companies in the Semiconductor industry in China, where around half of the companies have P/S ratios below 7.6x and even P/S below 3x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Chengdu Sino-Microelectronics Tech

How Chengdu Sino-Microelectronics Tech Has Been Performing

Chengdu Sino-Microelectronics Tech hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chengdu Sino-Microelectronics Tech.

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

In order to justify its P/S ratio, Chengdu Sino-Microelectronics Tech would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 22%. Even so, admirably revenue has lifted 34% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 74% over the next year. With the industry only predicted to deliver 52%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Chengdu Sino-Microelectronics Tech's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Chengdu Sino-Microelectronics Tech's P/S Mean For Investors?

Chengdu Sino-Microelectronics Tech's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our look into Chengdu Sino-Microelectronics Tech shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Chengdu Sino-Microelectronics Tech that we have uncovered.

If you're unsure about the strength of Chengdu Sino-Microelectronics Tech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.