Thinkon Semiconductor Jinzhou Corp. (SHSE:688233) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Since its price has surged higher, Thinkon Semiconductor Jinzhou's price-to-sales (or "P/S") ratio of 18.9x might make it look like a strong sell right now compared to other companies in the Semiconductor industry in China, where around half of the companies have P/S ratios below 5.4x 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.

How Has Thinkon Semiconductor Jinzhou Performed Recently?

Thinkon Semiconductor Jinzhou hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. 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 Thinkon Semiconductor Jinzhou?

In order to justify its P/S ratio, Thinkon Semiconductor Jinzhou would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 48% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 173% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 36%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Thinkon Semiconductor Jinzhou's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Thinkon Semiconductor Jinzhou's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Thinkon Semiconductor Jinzhou shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 3 warning signs for Thinkon Semiconductor Jinzhou you should be aware of, and 2 of them can't be ignored.

If you're unsure about the strength of Thinkon Semiconductor Jinzhou'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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