Fine Semitech Corp.'s (KOSDAQ:036810) Shares Climb 26% But Its Business Is Yet to Catch Up

Fine Semitech Corp. (KOSDAQ:036810) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 111% in the last year.

After such a large jump in price, you could be forgiven for thinking Fine Semitech is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in Korea's Semiconductor industry have P/S ratios below 1.6x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Fine Semitech

What Does Fine Semitech's Recent Performance Look Like?

Recent times have been quite advantageous for Fine Semitech as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fine Semitech's earnings, revenue and cash flow.

How Is Fine Semitech's Revenue Growth Trending?

In order to justify its P/S ratio, Fine Semitech would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 41%. The strong recent performance means it was also able to grow revenue by 36% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 49% shows it's noticeably less attractive.

With this in mind, we find it worrying that Fine Semitech's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Fine Semitech's P/S

Fine Semitech's P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

The fact that Fine Semitech currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Having said that, be aware Fine Semitech is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.

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

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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.