With a price-to-sales (or "P/S") ratio of 0.3x Wuxi Taiji Industry Limited Corporation (SHSE:600667) may be sending very bullish signals at the moment, given that almost half of all the Semiconductor companies in China have P/S ratios greater than 5.7x and even P/S higher than 10x are not unusual. 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.

How Has Wuxi Taiji Industry Limited Performed Recently?

With revenue growth that's inferior to most other companies of late, Wuxi Taiji Industry Limited has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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 Wuxi Taiji Industry Limited's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period has seen an excellent 103% overall rise in revenue, in spite of its uninspiring short-term performance. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Turning to the outlook, the next year should generate growth of 35% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 35%, which is not materially different.

With this in consideration, we find it intriguing that Wuxi Taiji Industry Limited's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Wuxi Taiji Industry Limited's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It looks to us like the P/S figures for Wuxi Taiji Industry Limited remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Wuxi Taiji Industry Limited that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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