With A 28% Price Drop For ispace, inc. (TSE:9348) You'll Still Get What You Pay For

The ispace, inc. (TSE:9348) share price has fared very poorly over the last month, falling by a substantial 28%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

Although its price has dipped substantially, ispace may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 20.9x, when you consider almost half of the companies in the Aerospace & Defense industry in Japan have P/S ratios under 5.3x and even P/S lower than 2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for ispace

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

Recent times have been advantageous for ispace as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For ispace?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like ispace's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 138%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 72% per year during the coming three years according to the sole analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 21% per year, which is noticeably less attractive.

In light of this, it's understandable that ispace's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

A significant share price dive has done very little to deflate ispace's very lofty P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ispace's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for ispace 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com