The Chipsea Technologies (shenzhen) Corp. (SHSE:688595) share price has fared very poorly over the last month, falling by a substantial 34%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 47% in that time.

In spite of the heavy fall in price, given close to half the companies operating in China's Semiconductor industry have price-to-sales ratios (or "P/S") below 5.9x, you may still consider Chipsea Technologies (shenzhen) as a stock to potentially avoid with its 8.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does Chipsea Technologies (shenzhen)'s Recent Performance Look Like?

Chipsea Technologies (shenzhen) could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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

The only time you'd be truly comfortable seeing a P/S as high as Chipsea Technologies (shenzhen)'s is when the company's growth is on track to outshine the industry.

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 39%. Regardless, revenue has managed to lift by a handy 15% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 72% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 35%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Chipsea Technologies (shenzhen)'s P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Chipsea Technologies (shenzhen)'s P/S Mean For Investors?

Chipsea Technologies (shenzhen)'s P/S remain high even after its stock plunged. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Chipsea Technologies (shenzhen) 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. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Chipsea Technologies (shenzhen), and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Chipsea Technologies (shenzhen), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.