Jiangsu Aisen Semiconductor Material Co.,Ltd. (SHSE:688720) shares have had a really impressive month, gaining 59% after a shaky period beforehand. 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.

Since its price has surged higher, Jiangsu Aisen Semiconductor MaterialLtd may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 10.2x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 7.1x and even P/S lower than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Jiangsu Aisen Semiconductor MaterialLtd Has Been Performing

Recent times have been advantageous for Jiangsu Aisen Semiconductor MaterialLtd as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The latest three year period has also seen an excellent 35% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 23% over the next year. With the industry predicted to deliver 37% growth, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Jiangsu Aisen Semiconductor MaterialLtd's P/S sits above the majority of other companies. 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Jiangsu Aisen Semiconductor MaterialLtd's P/S

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Jiangsu Aisen Semiconductor MaterialLtd, this doesn't appear to be impacting the P/S in the slightest. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Jiangsu Aisen Semiconductor MaterialLtd (of which 1 shouldn't be ignored!) you should know about.

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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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.