Subdued Growth No Barrier To Envipro Holdings Inc. (TSE:5698) With Shares Advancing 25%

Envipro Holdings Inc. (TSE:5698) shareholders have had their patience rewarded with a 25% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Envipro Holdings' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Japan is also close to 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.

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View our latest analysis for Envipro Holdings

How Has Envipro Holdings Performed Recently?

As an illustration, revenue has deteriorated at Envipro Holdings over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Envipro Holdings' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.4%. As a result, revenue from three years ago have also fallen 14% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.5% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Envipro Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Envipro Holdings' P/S?

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.

Our look at Envipro Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You need to take note of risks, for example - Envipro Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.