The Price Is Right For Nippon Thompson Co., Ltd. (TSE:6480) Even After Diving 27%

The Nippon Thompson Co., Ltd. (TSE:6480) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 39% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that Nippon Thompson's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Machinery industry in Japan, where the median P/S ratio is around 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Nippon Thompson

What Does Nippon Thompson's P/S Mean For Shareholders?

Nippon Thompson could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. 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 Nippon Thompson .

Is There Some Revenue Growth Forecasted For Nippon Thompson?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.7%. As a result, revenue from three years ago have also fallen 11% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 5.8% during the coming year according to the dual analysts following the company. With the industry predicted to deliver 4.6% growth , the company is positioned for a comparable revenue result.

With this information, we can see why Nippon Thompson is trading at a fairly similar P/S to the industry. 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 Nippon Thompson's P/S

With its share price dropping off a cliff, the P/S for Nippon Thompson looks to be in line with the rest of the Machinery industry. 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.

We've seen that Nippon Thompson 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. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Before you take the next step, you should know about the 2 warning signs for Nippon Thompson (1 is potentially serious!) that we have uncovered.

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.