Thinkon Semiconductor Jinzhou Corp.'s (SHSE:688233) price-to-sales (or "P/S") ratio of 18.4x might make it look like a strong sell right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.9x and even P/S below 3x are quite common. 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.

See our latest analysis for Thinkon Semiconductor Jinzhou

How Has Thinkon Semiconductor Jinzhou Performed Recently?

While the industry has experienced revenue growth lately, Thinkon Semiconductor Jinzhou's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

How Is Thinkon Semiconductor Jinzhou's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Thinkon Semiconductor Jinzhou's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 51%. Still, the latest three year period has seen an excellent 98% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 177% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 38% growth forecast for the broader industry.

In light of this, it's understandable that Thinkon Semiconductor Jinzhou's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Thinkon Semiconductor Jinzhou's P/S

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.

Our look into Thinkon Semiconductor Jinzhou shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Thinkon Semiconductor Jinzhou that you should be aware of.

If these risks are making you reconsider your opinion on Thinkon Semiconductor Jinzhou, 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.