Shima Seiki Mfg.,Ltd.'s (TSE:6222) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Shima Seiki Mfg.,Ltd. (TSE:6222) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Although its price has dipped substantially, when almost half of the companies in Japan's Machinery industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Shima Seiki Mfg.Ltd as a stock probably not worth researching with its 1.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Shima Seiki Mfg.Ltd

How Has Shima Seiki Mfg.Ltd Performed Recently?

While the industry has experienced revenue growth lately, Shima Seiki Mfg.Ltd's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Shima Seiki Mfg.Ltd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Shima Seiki Mfg.Ltd's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 17% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 37% over the next year. That's shaping up to be materially higher than the 5.5% growth forecast for the broader industry.

With this information, we can see why Shima Seiki Mfg.Ltd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Shima Seiki Mfg.Ltd's P/S Mean For Investors?

Shima Seiki Mfg.Ltd's P/S remain high even after its stock plunged. 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.

As we suspected, our examination of Shima Seiki Mfg.Ltd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Shima Seiki Mfg.Ltd that you should be aware of.

If these risks are making you reconsider your opinion on Shima Seiki Mfg.Ltd, 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.

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