Why Investors Shouldn't Be Surprised By Shimizu Corporation's (TSE:1803) P/S

There wouldn't be many who think Shimizu Corporation's (TSE:1803) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Construction industry in Japan is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Shimizu

How Shimizu Has Been Performing

Recent times have been advantageous for Shimizu as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shimizu.

Is There Some Revenue Growth Forecasted For Shimizu?

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

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 38% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 0.3% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be similar to the 2.2% each year growth forecast for the broader industry.

In light of this, it's understandable that Shimizu's 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 Shimizu maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

It is also worth noting that we have found 4 warning signs for Shimizu (1 is concerning!) that you need to take into consideration.

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