Those holding Jiangsu Aisen Semiconductor Material Co.,Ltd. (SHSE:688720) shares would be relieved that the share price has rebounded 37% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, Jiangsu Aisen Semiconductor MaterialLtd may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 9.6x, since almost half of all companies in the Semiconductor in China have P/S ratios under 6.5x and even P/S lower than 3x are not unusual. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How Has Jiangsu Aisen Semiconductor MaterialLtd Performed Recently?

Jiangsu Aisen Semiconductor MaterialLtd could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Jiangsu Aisen Semiconductor MaterialLtd?

In order to justify its P/S ratio, Jiangsu Aisen Semiconductor MaterialLtd would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. The latest three year period has also seen an excellent 72% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the sole analyst following the company. With the industry predicted to deliver 37% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Jiangsu Aisen Semiconductor MaterialLtd's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

The Final Word

Jiangsu Aisen Semiconductor MaterialLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've concluded that Jiangsu Aisen Semiconductor MaterialLtd 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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jiangsu Aisen Semiconductor MaterialLtd you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.