Investors Still Aren't Entirely Convinced By ikuyo Co.,Ltd.'s (TSE:7273) Revenues Despite 25% Price Jump

Despite an already strong run, ikuyo Co.,Ltd. (TSE:7273) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 149% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about ikuyoLtd's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in Japan is also close to 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for ikuyoLtd

What Does ikuyoLtd's P/S Mean For Shareholders?

It looks like revenue growth has deserted ikuyoLtd recently, which is not something to boast about. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. Those who are bullish on ikuyoLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, ikuyoLtd 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. Still, the latest three year period has seen an excellent 34% overall rise in revenue, in spite of its uninspiring short-term performance. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

When compared to the industry's one-year growth forecast of 0.7%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that ikuyoLtd is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

ikuyoLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

To our surprise, ikuyoLtd revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 4 warning signs for ikuyoLtd you should be aware of, and 1 of them doesn't sit too well with us.

If these risks are making you reconsider your opinion on ikuyoLtd, 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.