Investors Aren't Buying Tianma Microelectronics Co., Ltd.'s (SZSE:000050) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.6x Tianma Microelectronics Co., Ltd. (SZSE:000050) is definitely a stock worth checking out, seeing as almost half of all the Electronic companies in China have P/S ratios greater than 3.6x and even P/S above 7x 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 Tianma Microelectronics

How Has Tianma Microelectronics Performed Recently?

Recent revenue growth for Tianma Microelectronics has been in line with the industry. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Tianma Microelectronics?

The only time you'd be truly comfortable seeing a P/S as depressed as Tianma Microelectronics' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 2.6% gain to the company's revenues. Revenue has also lifted 10% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 8.3% each year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 18% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Tianma Microelectronics' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Tianma Microelectronics' 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.

As expected, our analysis of Tianma Microelectronics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. The company will need a change of fortune to justify the P/S rising higher in the future.

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