Howa Machinery, Ltd. (TSE:6203) Stock Rockets 29% But Many Are Still Ignoring The Company

Howa Machinery, Ltd. (TSE:6203) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 76% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Howa Machinery's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Japan is also close to 0.8x. 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 Howa Machinery

What Does Howa Machinery's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Howa Machinery has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Howa Machinery's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Howa Machinery?

The only time you'd be comfortable seeing a P/S like Howa Machinery's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 29% last year. The latest three year period has also seen an excellent 33% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 7.0% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 4.5% growth forecast for the broader industry.

In light of this, it's curious that Howa Machinery's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Howa Machinery's P/S Mean For Investors?

Howa Machinery's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Howa Machinery's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You always need to take note of risks, for example - Howa Machinery has 1 warning sign we think you should be aware of.

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