Suzhou Novosense Microelectronics Co., Ltd. (SHSE:688052) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

Since its price has surged higher, Suzhou Novosense Microelectronics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 15.6x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 8.1x and even P/S lower than 3x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Suzhou Novosense Microelectronics

What Does Suzhou Novosense Microelectronics' Recent Performance Look Like?

Suzhou Novosense Microelectronics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Suzhou Novosense Microelectronics' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Turning to the outlook, the next year should generate growth of 57% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 42%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Suzhou Novosense Microelectronics' P/S is high relative to its industry peers. 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 Suzhou Novosense Microelectronics' 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 Suzhou Novosense Microelectronics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Suzhou Novosense Microelectronics with six simple checks.

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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