With a price-to-sales (or "P/S") ratio of 16.2x C*Core Technology Co., Ltd. (SHSE:688262) may be sending very bearish signals at the moment, given that almost half of all the Semiconductor companies in China have P/S ratios under 7.7x and even P/S lower than 3x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for C*Core Technology

How C*Core Technology Has Been Performing

C*Core Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is C*Core Technology's Revenue Growth Trending?

In order to justify its P/S ratio, C*Core Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. The latest three year period has also seen an excellent 123% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 131% over the next year. With the industry only predicted to deliver 41%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that C*Core Technology's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From C*Core Technology's P/S?

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.

We've established that C*Core Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for C*Core Technology (1 is potentially serious!) that we have uncovered.

If you're unsure about the strength of C*Core Technology's 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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