Market Might Still Lack Some Conviction On Arr Planner Co., Ltd. (TSE:2983) Even After 33% Share Price Boost

The Arr Planner Co., Ltd. (TSE:2983) share price has done very well over the last month, posting an excellent gain of 33%. The annual gain comes to 169% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Arr Planner's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Japan is also close to 0.5x. 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.

See our latest analysis for Arr Planner

How Arr Planner Has Been Performing

Revenue has risen firmly for Arr Planner recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

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

The only time you'd be comfortable seeing a P/S like Arr Planner'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 26%. The latest three year period has also seen an excellent 48% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 0.06% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Arr Planner's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Arr Planner's P/S?

Arr Planner appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Arr Planner currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Arr Planner is showing 3 warning signs in our investment analysis, and 1 of those is significant.

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.