Why We're Not Concerned Yet About Sodick Co., Ltd.'s (TSE:6143) 28% Share Price Plunge

Sodick Co., Ltd. (TSE:6143) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 7.9% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Sodick's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Japan's Machinery industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Sodick

How Sodick Has Been Performing

With revenue growth that's superior to most other companies of late, Sodick has been doing relatively well. 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.

Want the full picture on analyst estimates for the company? Then our free report on Sodick will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

Sodick'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 managed to grow revenues by a handy 9.7% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 2.0% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 6.2% per annum during the coming three years according to the two analysts following the company. That's shaping up to be similar to the 4.8% per annum growth forecast for the broader industry.

With this in mind, it makes sense that Sodick's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Sodick's P/S

With its share price dropping off a cliff, the P/S for Sodick looks to be in line with the rest of the Machinery industry. 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've seen that Sodick 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. 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's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sodick , and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.