Revenues Not Telling The Story For Allwinnertech Technology Co.,Ltd. (SZSE:300458) After Shares Rise 28%

Despite an already strong run, Allwinnertech Technology Co.,Ltd. (SZSE:300458) shares have been powering on, with a gain of 28% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.6% over the last year.

After such a large jump in price, Allwinnertech TechnologyLtd's price-to-sales (or "P/S") ratio of 7.3x might make it look like a sell right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios below 5.8x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Allwinnertech TechnologyLtd

What Does Allwinnertech TechnologyLtd's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Allwinnertech TechnologyLtd has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Allwinnertech TechnologyLtd?

The only time you'd be truly comfortable seeing a P/S as high as Allwinnertech TechnologyLtd's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 38% gain to the company's top line. The latest three year period has also seen a 5.7% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 26% over the next year. With the industry predicted to deliver 35% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Allwinnertech TechnologyLtd's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Allwinnertech TechnologyLtd's P/S

Allwinnertech TechnologyLtd's P/S is on the rise since its shares have risen strongly. 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.

We've concluded that Allwinnertech TechnologyLtd currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 1 warning sign for Allwinnertech TechnologyLtd that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com