Changsha Jingjia Microelectronics Co., Ltd.'s (SZSE:300474) price-to-sales (or "P/S") ratio of 40.5x might make it look like a strong sell right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios below 5.9x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

What Does Changsha Jingjia Microelectronics' Recent Performance Look Like?

Changsha Jingjia Microelectronics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Changsha Jingjia Microelectronics' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 38% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 9.1% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 52% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 20% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Changsha Jingjia 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 Bottom Line On Changsha Jingjia Microelectronics' P/S

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.

Our look into Changsha Jingjia Microelectronics shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Before you take the next step, you should know about the 2 warning signs for Changsha Jingjia Microelectronics that we have uncovered.

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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