Further Upside For Envipro Holdings Inc. (TSE:5698) Shares Could Introduce Price Risks After 28% Bounce

Envipro Holdings Inc. (TSE:5698) shareholders have had their patience rewarded with a 28% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.2% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Envipro Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Japan's Commercial Services industry is similar at about 0.6x. 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.

Check out our latest analysis for Envipro Holdings

What Does Envipro Holdings' Recent Performance Look Like?

Envipro Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Envipro Holdings.

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

Envipro Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. So it seems apparent to us that the company has struggled to grow revenue meaningfully over that time.

Turning to the outlook, the next year should generate growth of 8.9% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 4.7%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Envipro Holdings' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Envipro Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Envipro Holdings currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Envipro Holdings (1 can't be ignored) 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.