Anhui XDLK Microsystem Corporation Limited's (SHSE:688582) Earnings Haven't Escaped The Attention Of Investors

With a price-to-sales (or "P/S") ratio of 47.9x Anhui XDLK Microsystem Corporation Limited (SHSE:688582) may be sending very bearish signals at the moment, given that almost half of all the Electronic companies in China have P/S ratios under 4.4x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Anhui XDLK Microsystem

What Does Anhui XDLK Microsystem's P/S Mean For Shareholders?

Recent times have been advantageous for Anhui XDLK Microsystem as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Anhui XDLK Microsystem'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 High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as Anhui XDLK Microsystem's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 38%. Pleasingly, revenue has also lifted 139% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 53% over the next year. That's shaping up to be materially higher than the 27% growth forecast for the broader industry.

In light of this, it's understandable that Anhui XDLK Microsystem's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Anhui XDLK Microsystem shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about this 1 warning sign we've spotted with Anhui XDLK Microsystem.

If these risks are making you reconsider your opinion on Anhui XDLK Microsystem, 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.