Puya Semiconductor (Shanghai) Co., Ltd. (SHSE:688766) shares have continued their recent momentum with a 36% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 68%.

Although its price has surged higher, there still wouldn't be many who think Puya Semiconductor (Shanghai)'s price-to-sales (or "P/S") ratio of 7.5x is worth a mention when the median P/S in China's Semiconductor industry is similar at about 7.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Puya Semiconductor (Shanghai)'s P/S Mean For Shareholders?

Puya Semiconductor (Shanghai) certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Some Revenue Growth Forecasted For Puya Semiconductor (Shanghai)?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Puya Semiconductor (Shanghai)'s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 86% gain to the company's top line. Pleasingly, revenue has also lifted 60% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 31% as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 47% growth forecast for the broader industry.

With this information, we find it interesting that Puya Semiconductor (Shanghai) is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Puya Semiconductor (Shanghai)'s P/S

Puya Semiconductor (Shanghai) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

When you consider that Puya Semiconductor (Shanghai)'s revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Puya Semiconductor (Shanghai) that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.