Nexchip Semiconductor Corporation (SHSE:688249) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Since its price has dipped substantially, Nexchip Semiconductor may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.6x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.5x and even P/S higher than 10x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Nexchip Semiconductor's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Nexchip Semiconductor's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For Nexchip Semiconductor?

In order to justify its P/S ratio, Nexchip Semiconductor would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 32% over the next year. Meanwhile, the rest of the industry is forecast to expand by 35%, which is not materially different.

In light of this, it's peculiar that Nexchip Semiconductor's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Nexchip Semiconductor's P/S?

Nexchip Semiconductor's P/S has taken a dip along with its share price. 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 Nexchip Semiconductor remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Nexchip Semiconductor with six simple checks on some of these key factors.

If you're unsure about the strength of Nexchip Semiconductor'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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