Despite an already strong run, Nanya New Material Technology Co.,Ltd (SHSE:688519) shares have been powering on, with a gain of 54% in the last thirty days. Looking further back, the 25% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Nanya New Material TechnologyLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 3.7x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Nanya New Material TechnologyLtd's Recent Performance Look Like?

For instance, Nanya New Material TechnologyLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Nanya New Material TechnologyLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Nanya New Material TechnologyLtd'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 16%. Regardless, revenue has managed to lift by a handy 17% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

In light of this, it's understandable that Nanya New Material TechnologyLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Despite Nanya New Material TechnologyLtd's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Nanya New Material TechnologyLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Nanya New Material TechnologyLtd (1 is a bit unpleasant!) that you should be aware of before investing here.

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.