Tongfu Microelectronics Co.,Ltd (SZSE:002156) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.5% in the last twelve months.

In spite of the firm bounce in price, Tongfu MicroelectronicsLtd's price-to-sales (or "P/S") ratio of 1.6x might still make it look like a strong buy right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios above 6.6x and even P/S above 12x are quite common. 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.

What Does Tongfu MicroelectronicsLtd's P/S Mean For Shareholders?

Tongfu MicroelectronicsLtd could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

The only time you'd be truly comfortable seeing a P/S as depressed as Tongfu MicroelectronicsLtd's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. The latest three year period has also seen an excellent 129% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 20,706%, which is noticeably more attractive.

In light of this, it's understandable that Tongfu MicroelectronicsLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Tongfu MicroelectronicsLtd's P/S Mean For Investors?

Tongfu MicroelectronicsLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As we suspected, our examination of Tongfu MicroelectronicsLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Tongfu MicroelectronicsLtd (1 makes us a bit uncomfortable!) that you should be aware of.

If you're unsure about the strength of Tongfu MicroelectronicsLtd'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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