ASUSTeK Computer Inc. (TWSE:2357) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies operating in the Tech industry in Taiwan have price-to-sales ratios (or "P/S") above 1.5x, you may consider ASUSTeK Computer Inc. (TWSE:2357) as an attractive investment with its 0.8x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for ASUSTeK Computer

How Has ASUSTeK Computer Performed Recently?

Recent times have been advantageous for ASUSTeK Computer as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

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

In order to justify its P/S ratio, ASUSTeK Computer would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.6%. The solid recent performance means it was also able to grow revenue by 5.6% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 21% as estimated by the twelve analysts watching the company. With the industry predicted to deliver 32% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why ASUSTeK Computer's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of ASUSTeK Computer's analyst forecasts revealed that its inferior revenue outlook is contributing 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for ASUSTeK Computer that you should be aware of.

If these risks are making you reconsider your opinion on ASUSTeK Computer, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.