Shima Seiki Mfg.,Ltd. (TSE:6222) Might Not Be As Mispriced As It Looks

It's not a stretch to say that Shima Seiki Mfg.,Ltd.'s (TSE:6222) price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" for companies in the Machinery industry in Japan, where the median P/S ratio is around 0.7x. 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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Check out our latest analysis for Shima Seiki Mfg.Ltd

What Does Shima Seiki Mfg.Ltd's Recent Performance Look Like?

Shima Seiki Mfg.Ltd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.4%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 13% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 3.6%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Shima Seiki Mfg.Ltd's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Shima Seiki Mfg.Ltd's P/S

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.

Looking at Shima Seiki Mfg.Ltd's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shima Seiki Mfg.Ltd you should know about.

If you're unsure about the strength of Shima Seiki Mfg.Ltd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.