Market Cool On Asahi Eito Holdings Co.,Ltd.'s (TSE:5341) Revenues Pushing Shares 26% Lower

Asahi Eito Holdings Co.,Ltd. (TSE:5341) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

In spite of the heavy fall in price, it's still not a stretch to say that Asahi Eito HoldingsLtd's price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Building industry in Japan, where the median P/S ratio is around 0.5x. 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.

View our latest analysis for Asahi Eito HoldingsLtd

How Asahi Eito HoldingsLtd Has Been Performing

Recent times have been quite advantageous for Asahi Eito HoldingsLtd as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

Asahi Eito HoldingsLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. Pleasingly, revenue has also lifted 119% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 5.4%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Asahi Eito HoldingsLtd's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Following Asahi Eito HoldingsLtd's share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't quite envision Asahi Eito HoldingsLtd's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Asahi Eito HoldingsLtd has 3 warning signs (and 1 which can't be ignored) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com