More Unpleasant Surprises Could Be In Store For Prored Partners CO.,LTD.'s (TSE:7034) Shares After Tumbling 25%

Prored Partners CO.,LTD. (TSE:7034) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Prored PartnersLTD's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Japan's Professional Services industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Prored PartnersLTD

How Has Prored PartnersLTD Performed Recently?

The revenue growth achieved at Prored PartnersLTD over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Prored PartnersLTD's earnings, revenue and cash flow.

How Is Prored PartnersLTD's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 16%. Still, revenue has fallen 4.5% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.4% shows it's an unpleasant look.

With this in mind, we find it worrying that Prored PartnersLTD's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

Prored PartnersLTD's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

The fact that Prored PartnersLTD currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - Prored PartnersLTD has 3 warning signs we think you should be aware of.

If you're unsure about the strength of Prored PartnersLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.