Revenues Not Telling The Story For Fine Semitech Corp. (KOSDAQ:036810) After Shares Rise 28%

Fine Semitech Corp. (KOSDAQ:036810) shares have continued their recent momentum with a 28% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Fine Semitech's P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in Korea is also close to 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Fine Semitech

How Fine Semitech Has Been Performing

With revenue growth that's exceedingly strong of late, Fine Semitech has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on Fine Semitech will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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?

Fine Semitech's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 41% last year. The latest three year period has also seen an excellent 39% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Fine Semitech is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Fine Semitech's P/S?

Fine Semitech appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that Fine Semitech's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you settle on your opinion, we've discovered 3 warning signs for Fine Semitech (2 don't sit too well with us!) that you should be aware of.

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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.