Insufficient Growth At ENNOSTAR Inc. (TWSE:3714) Hampers Share Price

You may think that with a price-to-sales (or "P/S") ratio of 1.4x ENNOSTAR Inc. (TWSE:3714) 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.

View our latest analysis for ENNOSTAR

How ENNOSTAR Has Been Performing

Recent times haven't been great for ENNOSTAR as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For ENNOSTAR?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like ENNOSTAR's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.2% last year. Still, lamentably revenue has fallen 21% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.1% during the coming year according to the three analysts following the company. With the industry predicted to deliver 15,352% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why ENNOSTAR'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 ENNOSTAR's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of ENNOSTAR's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for ENNOSTAR that you need to be mindful 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.