Stock Analysis

PlayNitride Inc.'s (TWSE:6854) Shares Climb 25% But Its Business Is Yet to Catch Up

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TWSE:6854

PlayNitride Inc. (TWSE:6854) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 187% in the last year.

Following the firm bounce in price, given around half the companies in Taiwan's Semiconductor industry have price-to-sales ratios (or "P/S") below 3.4x, you may consider PlayNitride as a stock to avoid entirely with its 21.6x 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.

Check out our latest analysis for PlayNitride

TWSE:6854 Price to Sales Ratio vs Industry February 13th 2025

What Does PlayNitride's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, PlayNitride has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is PlayNitride's Revenue Growth Trending?

PlayNitride's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 61% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 76% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 15,113%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that PlayNitride's P/S is outpacing its industry peers. 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.

The Key Takeaway

PlayNitride's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

It comes as a surprise to see PlayNitride trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - PlayNitride has 2 warning signs we think you should be aware 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.