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TWOSTONE&Sons Inc. (TSE:7352) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable
Despite an already strong run, TWOSTONE&Sons Inc. (TSE:7352) shares have been powering on, with a gain of 30% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 13% in the last twelve months.
Since its price has surged higher, given around half the companies in Japan's Professional Services industry have price-to-sales ratios (or "P/S") below 1x, you may consider TWOSTONE&Sons as a stock to avoid entirely with its 3.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for TWOSTONE&Sons
What Does TWOSTONE&Sons' Recent Performance Look Like?
Recent times have been advantageous for TWOSTONE&Sons as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on TWOSTONE&Sons will help you uncover what's on the horizon.What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, TWOSTONE&Sons would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, we see that the company grew revenue by an impressive 38% last year. The latest three year period has also seen an excellent 184% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 23% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 6.8% per annum, which is noticeably less attractive.
With this in mind, it's not hard to understand why TWOSTONE&Sons' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From TWOSTONE&Sons' P/S?
Shares in TWOSTONE&Sons have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of TWOSTONE&Sons' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Before you settle on your opinion, we've discovered 1 warning sign for TWOSTONE&Sons that 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).
Valuation is complex, but we're here to simplify it.
Discover if TWOSTONE&Sons might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave 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.
About TSE:7352
Solid track record with excellent balance sheet.
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