The Shanghai New Vision Microelectronics Co., Ltd (SHSE:688593) share price has fared very poorly over the last month, falling by a substantial 30%. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Even after such a large drop in price, Shanghai New Vision Microelectronics may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 10.3x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 6x and even P/S lower than 3x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shanghai New Vision Microelectronics

What Does Shanghai New Vision Microelectronics' Recent Performance Look Like?

Shanghai New Vision Microelectronics has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Shanghai New Vision Microelectronics?

The only time you'd be truly comfortable seeing a P/S as steep as Shanghai New Vision Microelectronics' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 5.8% gain to the company's revenues. Pleasingly, revenue has also lifted 110% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 36% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Shanghai New Vision Microelectronics is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Shanghai New Vision Microelectronics' P/S?

Shanghai New Vision Microelectronics' shares may have suffered, but its P/S remains high. 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.

The fact that Shanghai New Vision Microelectronics currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai New Vision Microelectronics (of which 1 is potentially serious!) you should know about.

If you're unsure about the strength of Shanghai New Vision Microelectronics' 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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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.