uPI Semiconductor Corp.'s (TWSE:6719) Business Is Yet to Catch Up With Its Share Price

When close to half the companies in the Semiconductor industry in Taiwan have price-to-sales ratios (or "P/S") below 3.6x, you may consider uPI Semiconductor Corp. (TWSE:6719) as a stock to avoid entirely with its 6.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for uPI Semiconductor

What Does uPI Semiconductor's P/S Mean For Shareholders?

Recent times haven't been great for uPI Semiconductor as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. 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 uPI Semiconductor's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For uPI Semiconductor?

In order to justify its P/S ratio, uPI Semiconductor would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. Still, lamentably revenue has fallen 34% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the six analysts following the company. That's shaping up to be materially lower than the 21,992% growth forecast for the broader industry.

In light of this, it's alarming that uPI Semiconductor's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does uPI Semiconductor's P/S Mean For Investors?

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.

We've concluded that uPI Semiconductor currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you take the next step, you should know about the 1 warning sign for uPI Semiconductor that we have uncovered.

If you're unsure about the strength of uPI Semiconductor's 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.