Tsubaki Nakashima Co., Ltd. (TSE:6464) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

Tsubaki Nakashima Co., Ltd. (TSE:6464) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

Even after such a large drop in price, there still wouldn't be many who think Tsubaki Nakashima's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Japan's Machinery industry is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Tsubaki Nakashima

What Does Tsubaki Nakashima's Recent Performance Look Like?

Tsubaki Nakashima hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Tsubaki Nakashima's Revenue Growth Trending?

In order to justify its P/S ratio, Tsubaki Nakashima would need to produce growth that's similar to the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow revenue by 20% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 4.7% over the next year. With the industry predicted to deliver 4.9% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Tsubaki Nakashima's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Tsubaki Nakashima's plummeting stock price has brought its P/S back to a similar region as 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.

We've seen that Tsubaki Nakashima maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Tsubaki Nakashima that you should be aware of.

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.