Sumitomo Rubber Industries, Ltd.'s (TSE:5110) Earnings Haven't Escaped The Attention Of Investors

Explore Sumitomo Rubber Industries's Fair Values from the Community and select yours

It's not a stretch to say that Sumitomo Rubber Industries, Ltd.'s (TSE:5110) price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" for companies in the Auto Components industry in Japan, where the median P/S ratio is around 0.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Sumitomo Rubber Industries

What Does Sumitomo Rubber Industries' P/S Mean For Shareholders?

Recent revenue growth for Sumitomo Rubber Industries has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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Is There Some Revenue Growth Forecasted For Sumitomo Rubber Industries?

In order to justify its P/S ratio, Sumitomo Rubber Industries would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 24% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 2.6% each year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 2.4% per year, which is not materially different.

In light of this, it's understandable that Sumitomo Rubber Industries' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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 seen that Sumitomo Rubber Industries maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Having said that, be aware Sumitomo Rubber Industries is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.