Wuxi Chipown Micro-electronics limited (SHSE:688508) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Wuxi Chipown Micro-electronics' price-to-sales (or "P/S") ratio of 6.8x is worth a mention when the median P/S in China's Semiconductor industry is similar at about 6.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Wuxi Chipown Micro-electronics' Recent Performance Look Like?

Recent times haven't been great for Wuxi Chipown Micro-electronics as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Some Revenue Growth Forecasted For Wuxi Chipown Micro-electronics?

The only time you'd be comfortable seeing a P/S like Wuxi Chipown Micro-electronics' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. This was backed up an excellent period prior to see revenue up by 57% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 27% over the next year. With the industry predicted to deliver 35% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Wuxi Chipown Micro-electronics is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Wuxi Chipown Micro-electronics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Given that Wuxi Chipown Micro-electronics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

You always need to take note of risks, for example - Wuxi Chipown Micro-electronics has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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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