Hangzhou Silan Microelectronics Co.,Ltd (SHSE:600460) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

Although its price has surged higher, Hangzhou Silan MicroelectronicsLtd's price-to-sales (or "P/S") ratio of 3.9x might still make it look like a buy right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios above 6.5x and even P/S above 12x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Hangzhou Silan MicroelectronicsLtd Has Been Performing

Recent times haven't been great for Hangzhou Silan MicroelectronicsLtd as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Hangzhou Silan MicroelectronicsLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Hangzhou Silan MicroelectronicsLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.8% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 132% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 23% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 31% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Hangzhou Silan MicroelectronicsLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Hangzhou Silan MicroelectronicsLtd's P/S?

The latest share price surge wasn't enough to lift Hangzhou Silan MicroelectronicsLtd's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Hangzhou Silan MicroelectronicsLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 4 warning signs we've spotted with Hangzhou Silan MicroelectronicsLtd (including 1 which makes us a bit uncomfortable).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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