What Puya Semiconductor (Shanghai) Co., Ltd.'s (SHSE:688766) 27% Share Price Gain Is Not Telling You

Despite an already strong run, Puya Semiconductor (Shanghai) Co., Ltd. (SHSE:688766) shares have been powering on, with a gain of 27% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Puya Semiconductor (Shanghai)'s P/S ratio of 6.6x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in China is also close to 6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Puya Semiconductor (Shanghai)

How Puya Semiconductor (Shanghai) Has Been Performing

With revenue growth that's superior to most other companies of late, Puya Semiconductor (Shanghai) has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Puya Semiconductor (Shanghai)'s future stacks up against the industry? In that case, our free report is a great place to start.

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

The only time you'd be comfortable seeing a P/S like Puya Semiconductor (Shanghai)'s is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 47%. The strong recent performance means it was also able to grow revenue by 64% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 32% over the next year. Meanwhile, the rest of the industry is forecast to expand by 37%, which is noticeably more attractive.

In light of this, it's curious that Puya Semiconductor (Shanghai)'s P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Puya Semiconductor (Shanghai)'s stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

When you consider that Puya Semiconductor (Shanghai)'s revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 1 warning sign for Puya Semiconductor (Shanghai) that we have uncovered.

If you're unsure about the strength of Puya Semiconductor (Shanghai)'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.