Smartsens Technology (Shanghai) Co., Ltd. (SHSE:688213) shareholders would be excited to see that the share price has had a great month, posting a 49% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Although its price has surged higher, Smartsens Technology (Shanghai) may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 5.1x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 7.1x and even P/S higher than 13x 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 Smartsens Technology (Shanghai)'s Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Smartsens Technology (Shanghai) has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Smartsens Technology (Shanghai)'s Revenue Growth Trending?

In order to justify its P/S ratio, Smartsens Technology (Shanghai) would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 103%. The latest three year period has also seen an excellent 97% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 23% over the next year. That's shaping up to be materially lower than the 37% growth forecast for the broader industry.

In light of this, it's understandable that Smartsens Technology (Shanghai)'s P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Smartsens Technology (Shanghai)'s P/S

Smartsens Technology (Shanghai)'s stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Smartsens Technology (Shanghai)'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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Smartsens Technology (Shanghai) you should be aware of, and 2 of them are potentially serious.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.