Telink Semiconductor(Shanghai)Co.,Ltd. (SHSE:688591) shares have continued their recent momentum with a 30% gain in the last month alone. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, Telink Semiconductor(Shanghai)Co.Ltd may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 10.7x, since almost half of all companies in the Semiconductor in China have P/S ratios under 7.3x 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 as high as it is.

What Does Telink Semiconductor(Shanghai)Co.Ltd's P/S Mean For Shareholders?

The revenue growth achieved at Telink Semiconductor(Shanghai)Co.Ltd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Telink Semiconductor(Shanghai)Co.Ltd's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Telink Semiconductor(Shanghai)Co.Ltd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. As a result, it also grew revenue by 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 49% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that Telink Semiconductor(Shanghai)Co.Ltd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Telink Semiconductor(Shanghai)Co.Ltd's P/S

Telink Semiconductor(Shanghai)Co.Ltd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 examination of Telink Semiconductor(Shanghai)Co.Ltd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Telink Semiconductor(Shanghai)Co.Ltd.

If these risks are making you reconsider your opinion on Telink Semiconductor(Shanghai)Co.Ltd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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