Winbond Electronics Corporation's (TWSE:2344) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 0.8x Winbond Electronics Corporation (TWSE:2344) is definitely a stock worth checking out, seeing as almost half of all the Semiconductor companies in Taiwan have P/S ratios greater than 3.4x and even P/S above 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Winbond Electronics

How Winbond Electronics Has Been Performing

With revenue growth that's inferior to most other companies of late, Winbond Electronics has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre 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.

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

How Is Winbond Electronics' Revenue Growth Trending?

Winbond Electronics' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.4% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 13% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 23% as estimated by the five analysts watching the company. With the industry predicted to deliver 16,113% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Winbond Electronics is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

As we suspected, our examination of Winbond Electronics' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Winbond Electronics you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.