Mitsubishi Logisnext Co., Ltd.'s (TSE:7105) Shares Leap 32% Yet They're Still Not Telling The Full Story

Despite an already strong run, Mitsubishi Logisnext Co., Ltd. (TSE:7105) shares have been powering on, with a gain of 32% in the last thirty days. The annual gain comes to 124% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, there still wouldn't be many who think Mitsubishi Logisnext'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. 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 Mitsubishi Logisnext

What Does Mitsubishi Logisnext's P/S Mean For Shareholders?

Mitsubishi Logisnext has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mitsubishi Logisnext will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 74% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 3.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Mitsubishi Logisnext's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Mitsubishi Logisnext's P/S

Its shares have lifted substantially and now Mitsubishi Logisnext's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We didn't quite envision Mitsubishi Logisnext's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - Mitsubishi Logisnext has 2 warning signs we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.