With a price-to-sales (or "P/S") ratio of 1.3x BOE HC SemiTek Corporation (SZSE:300323) may be sending very bullish signals at the moment, given that almost half of all the Semiconductor companies in China have P/S ratios greater than 6x and even P/S higher than 11x 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 limited.

How BOE HC SemiTek Has Been Performing

Recent times have been quite advantageous for BOE HC SemiTek as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

There's an inherent assumption that a company should far underperform the industry for P/S ratios like BOE HC SemiTek's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. The latest three year period has also seen an excellent 94% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 35% shows it's noticeably less attractive.

With this information, we can see why BOE HC SemiTek is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From BOE HC SemiTek's P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

In line with expectations, BOE HC SemiTek maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - BOE HC SemiTek has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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