Revenues Not Telling The Story For RichWave Technology Corporation (TWSE:4968) After Shares Rise 25%

RichWave Technology Corporation (TWSE:4968) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 26%.

Since its price has surged higher, when almost half of the companies in Taiwan's Semiconductor industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider RichWave Technology as a stock probably not worth researching with its 5.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for RichWave Technology

What Does RichWave Technology's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, RichWave Technology has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is RichWave Technology's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like RichWave Technology's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 41% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 29% as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 22,077% growth forecast for the broader industry.

With this information, we find it concerning that RichWave Technology is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does RichWave Technology's P/S Mean For Investors?

RichWave Technology shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for RichWave Technology, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 1 warning sign for RichWave Technology you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.