Tongfu Microelectronics Co.,Ltd's (SZSE:002156) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Tongfu Microelectronics Co.,Ltd (SZSE:002156) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 32%.

Even after such a large jump in price, Tongfu MicroelectronicsLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 6.7x and even P/S higher than 12x 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 limited.

View our latest analysis for Tongfu MicroelectronicsLtd

How Tongfu MicroelectronicsLtd Has Been Performing

Tongfu MicroelectronicsLtd could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Tongfu MicroelectronicsLtd?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Tongfu MicroelectronicsLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 6.5% gain to the company's revenues. The latest three year period has also seen an excellent 61% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the twelve analysts following the company. That's shaping up to be materially lower than the 45% growth forecast for the broader industry.

With this in consideration, its clear as to why Tongfu MicroelectronicsLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Tongfu MicroelectronicsLtd's P/S?

Tongfu MicroelectronicsLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Tongfu MicroelectronicsLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Tongfu MicroelectronicsLtd has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Tongfu MicroelectronicsLtd, 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.