Investors Aren't Entirely Convinced By i-plug,Inc.'s (TSE:4177) Revenues

With a median price-to-sales (or "P/S") ratio of close to 1.2x in the Professional Services industry in Japan, you could be forgiven for feeling indifferent about i-plug,Inc.'s (TSE:4177) P/S ratio, which comes in at about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for i-plugInc

What Does i-plugInc's P/S Mean For Shareholders?

i-plugInc certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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.

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

Is There Some Revenue Growth Forecasted For i-plugInc?

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

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. The latest three year period has also seen an excellent 107% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 7.0% per annum growth forecast for the broader industry.

In light of this, it's curious that i-plugInc's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

Despite enticing revenue growth figures that outpace the industry, i-plugInc's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It is also worth noting that we have found 2 warning signs for i-plugInc that you need to take into consideration.

If these risks are making you reconsider your opinion on i-plugInc, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.