Market Might Still Lack Some Conviction On Wagokoro Co., Ltd. (TSE:9271) Even After 32% Share Price Boost

Those holding Wagokoro Co., Ltd. (TSE:9271) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 2.4% isn't as impressive.

Even after such a large jump in price, there still wouldn't be many who think Wagokoro's price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S in Japan's Industrials industry is similar at about 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

We've discovered 4 warning signs about Wagokoro. View them for free.

Check out our latest analysis for Wagokoro

What Does Wagokoro's P/S Mean For Shareholders?

Wagokoro certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Wagokoro will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Wagokoro's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Wagokoro'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 terrific increase of 57%. The strong recent performance means it was also able to grow revenue by 132% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 6.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Wagokoro's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

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

Wagokoro's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We didn't quite envision Wagokoro'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. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Wagokoro (1 is significant!) that you need to be mindful of.

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.