The Price Is Right For ispace, inc. (TSE:9348) Even After Diving 30%

The ispace, inc. (TSE:9348) share price has softened a substantial 30% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Even after such a large drop in price, ispace may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 38.6x, since almost half of all companies in the Aerospace & Defense industry in Japan have P/S ratios under 4.8x and even P/S lower than 2x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for ispace

How ispace Has Been Performing

ispace certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think ispace's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

ispace's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 119% last year. Pleasingly, revenue has also lifted 294% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 138% over the next year. That's shaping up to be materially higher than the 36% growth forecast for the broader industry.

With this information, we can see why ispace is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On ispace's P/S

ispace's shares may have suffered, but its P/S remains high. 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've established that ispace maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Aerospace & Defense industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for ispace (of which 1 is potentially serious!) you should know about.

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