Even With A 35% Surge, Cautious Investors Are Not Rewarding Altech Co., Ltd.'s (TSE:9972) Performance Completely

Altech Co., Ltd. (TSE:9972) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Altech's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Trade Distributors industry in Japan, where the median P/S ratio is around 0.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Altech

How Altech Has Been Performing

We'd have to say that with no tangible growth over the last year, Altech's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For Altech?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 32% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

In contrast to the company, the rest of the industry is expected to decline by 0.7% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it odd that Altech is trading at a fairly similar P/S to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Altech appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our examination of Altech revealed its growing revenue over the medium-term hasn't helped elevate its P/S above that of the industry, which is surprising given the industry is set to shrink. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with Altech (including 2 which don't sit too well with us).

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.