Risks To Shareholder Returns Are Elevated At These Prices For Xi'an Peri Power Semiconductor Converting Technology Co.,Ltd. (SZSE:300831)

Xi'an Peri Power Semiconductor Converting Technology Co.,Ltd.'s (SZSE:300831) price-to-sales (or "P/S") ratio of 25.8x might make it look like a strong sell right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.8x and even P/S below 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Xi'an Peri Power Semiconductor Converting TechnologyLtd

What Does Xi'an Peri Power Semiconductor Converting TechnologyLtd's P/S Mean For Shareholders?

Recent times have been quite advantageous for Xi'an Peri Power Semiconductor Converting TechnologyLtd as its revenue has been rising very briskly. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Xi'an Peri Power Semiconductor Converting TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Xi'an Peri Power Semiconductor Converting TechnologyLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Xi'an Peri Power Semiconductor Converting TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 82% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 33% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 51% shows it's noticeably less attractive.

With this information, we find it concerning that Xi'an Peri Power Semiconductor Converting TechnologyLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates 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 Xi'an Peri Power Semiconductor Converting TechnologyLtd'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.

The fact that Xi'an Peri Power Semiconductor Converting TechnologyLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Xi'an Peri Power Semiconductor Converting TechnologyLtd that you need to be mindful of.

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.