Niche-Tech Semiconductor Materials Limited (HKG:8490) shareholders have had their patience rewarded with a 177% share price jump in the last month. The annual gain comes to 146% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that Niche-Tech Semiconductor Materials' price-to-sales (or "P/S") ratio of 1.5x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in Hong Kong, where the median P/S ratio is around 1.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

How Niche-Tech Semiconductor Materials Has Been Performing

Niche-Tech Semiconductor Materials has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Niche-Tech Semiconductor Materials will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Some Revenue Growth Forecasted For Niche-Tech Semiconductor Materials?

Niche-Tech Semiconductor Materials' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 2.1% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 19% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Niche-Tech Semiconductor Materials is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Niche-Tech Semiconductor Materials' P/S Mean For Investors?

Niche-Tech Semiconductor Materials' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Niche-Tech Semiconductor Materials revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Niche-Tech Semiconductor Materials (3 are potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Niche-Tech Semiconductor Materials' 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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