ASMPT Limited (HKG:522) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The last month has meant the stock is now only up 9.5% during the last year.

Even after such a large drop in price, you could still be forgiven for thinking ASMPT is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.7x, considering almost half the companies in Hong Kong's Semiconductor industry have P/S ratios below 1.1x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does ASMPT's Recent Performance Look Like?

ASMPT could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is ASMPT's Revenue Growth Trending?

ASMPT's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. As a result, revenue from three years ago have also fallen 24% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 13% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 16% each year, which is noticeably more attractive.

With this information, we find it concerning that ASMPT is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

ASMPT's P/S remain high even after its stock plunged. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It comes as a surprise to see ASMPT trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

You always need to take note of risks, for example - ASMPT has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on ASMPT, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.