Despite an already strong run, MEMSensing Microsystems (Suzhou, China) Co., Ltd. (SHSE:688286) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.
Following the firm bounce in price, MEMSensing Microsystems (Suzhou China)'s price-to-sales (or "P/S") ratio of 11.5x might make it look like a strong sell right now compared to other companies in the Electronic industry in China, where around half of the companies have P/S ratios below 4.3x and even P/S below 2x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for MEMSensing Microsystems (Suzhou China)
How MEMSensing Microsystems (Suzhou China) Has Been Performing
MEMSensing Microsystems (Suzhou China) 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. However, if this isn't the case, investors might get caught out paying too much for the stock.
How Is MEMSensing Microsystems (Suzhou China)'s Revenue Growth Trending?
In order to justify its P/S ratio, MEMSensing Microsystems (Suzhou China) would need to produce outstanding growth that's well in excess of the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 8.8%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Looking ahead now, revenue is anticipated to climb by 51% during the coming year according to the three analysts following the company. With the industry predicted to deliver 62% growth, the company is positioned for a weaker revenue result.
With this in consideration, we believe it doesn't make sense that MEMSensing Microsystems (Suzhou China)'s P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
What Does MEMSensing Microsystems (Suzhou China)'s P/S Mean For Investors?
Shares in MEMSensing Microsystems (Suzhou China) have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.
We've concluded that MEMSensing Microsystems (Suzhou China) currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.
Plus, you should also learn about these 2 warning signs we've spotted with MEMSensing Microsystems (Suzhou China).
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.
