Sai MicroElectronics Inc.'s (SZSE:300456) 57% Price Boost Is Out Of Tune With Revenues

Sai MicroElectronics Inc. (SZSE:300456) shareholders have had their patience rewarded with a 57% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 3.8% isn't as impressive.

Following the firm bounce in price, Sai MicroElectronics' price-to-sales (or "P/S") ratio of 11.6x might make it look like a strong sell right now compared to other companies in the Electronic industry in China, where around half of the companies have P/S ratios below 4x and even P/S below 2x 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.

See our latest analysis for Sai MicroElectronics

How Has Sai MicroElectronics Performed Recently?

Recent times have been advantageous for Sai MicroElectronics 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sai MicroElectronics.

Do Revenue Forecasts Match The High P/S Ratio?

Sai MicroElectronics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 81% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 82% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 25% as estimated by the lone analyst watching the company. With the industry predicted to deliver 26% growth , the company is positioned for a comparable revenue result.

With this information, we find it interesting that Sai MicroElectronics is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From Sai MicroElectronics' P/S?

The strong share price surge has lead to Sai MicroElectronics' P/S soaring as well. 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.

Analysts are forecasting Sai MicroElectronics' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 2 warning signs for Sai MicroElectronics (1 can't be ignored!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.