China Wafer Level CSP Co., Ltd. (SHSE:603005) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 8.3% isn't as impressive.

After such a large jump in price, China Wafer Level CSP may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 15.8x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 6.2x and even P/S lower than 2x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How Has China Wafer Level CSP Performed Recently?

China Wafer Level CSP 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. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is China Wafer Level CSP's Revenue Growth Trending?

In order to justify its P/S ratio, China Wafer Level CSP would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 9.1% decrease to the company's top line. As a result, revenue from three years ago have also fallen 25% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 48% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 35%, which is noticeably less attractive.

With this information, we can see why China Wafer Level CSP is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On China Wafer Level CSP's P/S

Shares in China Wafer Level CSP have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of China Wafer Level CSP's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for China Wafer Level CSP with six simple checks will allow you to discover any risks that could be an issue.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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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