Investors Still Aren't Entirely Convinced By Daidoh Limited's (TSE:3205) Revenues Despite 27% Price Jump

Despite an already strong run, Daidoh Limited (TSE:3205) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 118% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Daidoh's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Luxury industry in Japan, seeing as it matches the P/S ratio of the wider industry. 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 Daidoh

How Daidoh Has Been Performing

Revenue has risen firmly for Daidoh recently, which is pleasing to see. 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.

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

How Is Daidoh's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Daidoh's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.2% gain to the company's revenues. The latest three year period has also seen an excellent 60% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 6.3% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Daidoh'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.

The Final Word

Its shares have lifted substantially and now Daidoh's P/S is back within range of the industry median. 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.

We've established that Daidoh currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Daidoh (of which 1 doesn't sit too well with us!) you should know about.

If you're unsure about the strength of Daidoh'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.