Despite an already strong run, Chengdu Sino-Microelectronics Tech. Co., Ltd. (SHSE:688709) shares have been powering on, with a gain of 40% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Since its price has surged higher, Chengdu Sino-Microelectronics Tech may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 30x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 7.2x and even P/S lower than 3x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Chengdu Sino-Microelectronics Tech's P/S Mean For Shareholders?

Chengdu Sino-Microelectronics Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Chengdu Sino-Microelectronics Tech's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 22%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 34% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 77% over the next year. That's shaping up to be materially higher than the 49% growth forecast for the broader industry.

In light of this, it's understandable that Chengdu Sino-Microelectronics Tech's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Chengdu Sino-Microelectronics Tech's P/S?

Shares in Chengdu Sino-Microelectronics Tech have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Chengdu Sino-Microelectronics Tech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Chengdu Sino-Microelectronics Tech 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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