Some Zhuhai Aerospace Microchips Science & Technology Co., Ltd. (SZSE:300053) Shareholders Look For Exit As Shares Take 27% Pounding

Zhuhai Aerospace Microchips Science & Technology Co., Ltd. (SZSE:300053) shares have had a horrible month, losing 27% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Even after such a large drop in price, Zhuhai Aerospace Microchips Science & Technology may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 16.2x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 5.9x and even P/S lower than 2x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Zhuhai Aerospace Microchips Science & Technology

How Zhuhai Aerospace Microchips Science & Technology Has Been Performing

As an illustration, revenue has deteriorated at Zhuhai Aerospace Microchips Science & Technology over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhuhai Aerospace Microchips Science & Technology will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Zhuhai Aerospace Microchips Science & Technology?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Zhuhai Aerospace Microchips Science & Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. As a result, revenue from three years ago have also fallen 55% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 34% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Zhuhai Aerospace Microchips Science & Technology's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Zhuhai Aerospace Microchips Science & Technology's P/S?

A significant share price dive has done very little to deflate Zhuhai Aerospace Microchips Science & Technology's very lofty P/S. 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.

We've established that Zhuhai Aerospace Microchips Science & Technology currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Zhuhai Aerospace Microchips Science & Technology (at least 1 which is significant), and understanding these should be part of your investment process.

If you're unsure about the strength of Zhuhai Aerospace Microchips Science & Technology'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.