GalaxyCore Inc.'s (SHSE:688728) Price In Tune With Revenues

You may think that with a price-to-sales (or "P/S") ratio of 9x GalaxyCore Inc. (SHSE:688728) is a stock to potentially avoid, seeing as almost half of all the Semiconductor companies in China have P/S ratios under 6.3x and even P/S lower than 3x aren't out of the ordinary. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for GalaxyCore

How GalaxyCore Has Been Performing

While the industry has experienced revenue growth lately, GalaxyCore's 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on GalaxyCore.

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

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 21%. As a result, revenue from three years ago have also fallen 27% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 42% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 33% growth forecast for the broader industry.

In light of this, it's understandable that GalaxyCore's 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 Bottom Line On GalaxyCore's P/S

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.

Our look into GalaxyCore 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 3 warning signs for GalaxyCore (of which 1 makes us a bit uncomfortable!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.