GalaxyCore Inc. (SHSE:688728) shares have had a really impressive month, gaining 34% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.1% in the last twelve months.

After such a large jump in price, GalaxyCore may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 6.9x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 5.4x and even P/S lower than 2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does GalaxyCore's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, GalaxyCore has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

In order to justify its P/S ratio, GalaxyCore would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 28% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 39% over the next year. That's shaping up to be materially higher than the 36% growth forecast for the broader industry.

With this in mind, it's not hard to understand why GalaxyCore's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On GalaxyCore's P/S

GalaxyCore's P/S is on the rise since its shares have risen strongly. 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.

Our look into GalaxyCore shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for GalaxyCore (1 is a bit concerning!) that you should be aware of.

If you're unsure about the strength of GalaxyCore's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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