Kokusai Co., Ltd. (TSE:7722) Stocks Shoot Up 29% But Its P/S Still Looks Reasonable

Kokusai Co., Ltd. (TSE:7722) shareholders have had their patience rewarded with a 29% share price jump in the last month. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, it's still not a stretch to say that Kokusai's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Machinery industry in Japan, where the median P/S ratio is around 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Kokusai

What Does Kokusai's Recent Performance Look Like?

Revenue has risen firmly for Kokusai recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Kokusai, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kokusai's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Kokusai's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. Revenue has also lifted 11% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.8% shows it's about the same on an annualised basis.

With this information, we can see why Kokusai is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What We Can Learn From Kokusai's P/S?

Its shares have lifted substantially and now Kokusai's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we've seen, Kokusai's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Plus, you should also learn about these 4 warning signs we've spotted with Kokusai (including 1 which is a bit unpleasant).

If these risks are making you reconsider your opinion on Kokusai, 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.