Improved Revenues Required Before Powerchip Semiconductor Manufacturing Corp. (TWSE:6770) Shares Find Their Feet

Powerchip Semiconductor Manufacturing Corp.'s (TWSE:6770) price-to-sales (or "P/S") ratio of 1.9x might make it look like a buy right now compared to the Semiconductor industry in Taiwan, where around half of the companies have P/S ratios above 3.8x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Powerchip Semiconductor Manufacturing

What Does Powerchip Semiconductor Manufacturing's Recent Performance Look Like?

Powerchip Semiconductor Manufacturing could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Powerchip Semiconductor Manufacturing?

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

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 22%. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. 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 17% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is noticeably more attractive.

In light of this, it's understandable that Powerchip Semiconductor Manufacturing's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Powerchip Semiconductor Manufacturing'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. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Powerchip Semiconductor Manufacturing 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).

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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.