Investors Still Aren't Entirely Convinced By MITSUI E&S Co., Ltd.'s (TSE:7003) Revenues Despite 141% Price Jump

MITSUI E&S Co., Ltd. (TSE:7003) shares have continued their recent momentum with a 141% gain in the last month alone. This latest share price bounce rounds out a remarkable 306% gain over the last twelve months.

Although its price has surged higher, there still wouldn't be many who think MITSUI E&S' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Japan's Machinery industry is similar at about 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.

See our latest analysis for MITSUI E&S

What Does MITSUI E&S' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, MITSUI E&S has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on MITSUI E&S will help you uncover what's on the horizon.

How Is MITSUI E&S' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like MITSUI E&S' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 58% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 138% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 2.8%, which is noticeably less attractive.

With this information, we find it interesting that MITSUI E&S is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From MITSUI E&S' P/S?

MITSUI E&S' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Looking at MITSUI E&S' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for MITSUI E&S that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.