After Leaping 27% Holtek Semiconductor Inc. (TWSE:6202) Shares Are Not Flying Under The Radar

Holtek Semiconductor Inc. (TWSE:6202) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.5% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Holtek Semiconductor is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.9x, considering almost half the companies in Taiwan's Semiconductor industry have P/S ratios below 3.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Holtek Semiconductor

How Holtek Semiconductor Has Been Performing

While the industry has experienced revenue growth lately, Holtek Semiconductor's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as Holtek Semiconductor's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 43%. As a result, revenue from three years ago have also fallen 64% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 36% as estimated by the three analysts watching the company. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Holtek Semiconductor's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to Holtek Semiconductor's P/S soaring as well. 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.

As we suspected, our examination of Holtek Semiconductor's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Holtek Semiconductor with six simple checks on some of these key factors.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.