Lacklustre Performance Is Driving Torex Semiconductor Ltd.'s (TSE:6616) 31% Price Drop

Torex Semiconductor Ltd. (TSE:6616) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 44% share price drop.

Since its price has dipped substantially, Torex Semiconductor's price-to-sales (or "P/S") ratio of 0.5x might make it look like a buy right now compared to the Semiconductor industry in Japan, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Torex Semiconductor

How Torex Semiconductor Has Been Performing

While the industry has experienced revenue growth lately, Torex Semiconductor's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Torex Semiconductor will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Torex Semiconductor?

In order to justify its P/S ratio, Torex Semiconductor would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.6% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 8.7% as estimated by the only analyst watching the company. With the industry predicted to deliver 17% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Torex Semiconductor's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Torex Semiconductor's P/S?

Torex Semiconductor's P/S has taken a dip along with its 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've established that Torex Semiconductor maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 3 warning signs for Torex Semiconductor (2 are a bit concerning!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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