After Leaping 49% Tronic's Microsystems SA (EPA:ALTRO) Shares Are Not Flying Under The Radar

Tronic's Microsystems SA (EPA:ALTRO) shareholders have had their patience rewarded with a 49% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

After such a large jump in price, given around half the companies in France's Semiconductor industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Tronic's Microsystems as a stock to avoid entirely with its 3.6x P/S ratio. 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.

Check out our latest analysis for Tronic's Microsystems

What Does Tronic's Microsystems' Recent Performance Look Like?

The recent revenue growth at Tronic's Microsystems would have to be considered satisfactory if not spectacular. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Tronic's Microsystems, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Tronic's Microsystems would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 6.1% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 57% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 5.9% shows it's a great look while it lasts.

With this in mind, it's clear to us why Tronic's Microsystems' P/S exceeds that of its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the industry. Nonetheless, with most other businesses facing an uphill battle, staying on its current revenue path is no certainty.

The Key Takeaway

Tronic's Microsystems' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 see that Tronic's Microsystems justifiably maintains its high P/S on the merits of its recentthree-year revenue growth beating forecasts amidst struggling industry. Right now shareholders are comfortable with the P/S as they are quite confident revenues aren't under threat. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. If things remain consistent though, shareholders shouldn't expect any major share price shocks in the near term.

It is also worth noting that we have found 3 warning signs for Tronic's Microsystems (1 is concerning!) that you need to take into consideration.

If you're unsure about the strength of Tronic's Microsystems' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.