Winbond Electronics Corporation's (TWSE:2344) Shares Not Telling The Full Story

Winbond Electronics Corporation's (TWSE:2344) price-to-sales (or "P/S") ratio of 1.3x might make it look like a strong buy right now compared to the Semiconductor industry in Taiwan, where around half of the companies have P/S ratios above 3.6x and even P/S above 7x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Winbond Electronics

What Does Winbond Electronics' P/S Mean For Shareholders?

Recent times haven't been great for Winbond Electronics as its revenue has been falling quicker than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Winbond Electronics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Winbond Electronics' Revenue Growth Trending?

In order to justify its P/S ratio, Winbond Electronics would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.3%. Regardless, revenue has managed to lift by a handy 10% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the four analysts following the company. With the industry predicted to deliver 25% growth , the company is positioned for a comparable revenue result.

With this information, we find it odd that Winbond Electronics is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that Winbond Electronics currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for Winbond Electronics that you need to take into consideration.

If you're unsure about the strength of Winbond Electronics' 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.