After Leaping 151% GRANDES, Inc. (TSE:3261) Shares Are Not Flying Under The Radar

GRANDES, Inc. (TSE:3261) shares have continued their recent momentum with a 151% gain in the last month alone. The last month tops off a massive increase of 294% in the last year.

Since its price has surged higher, given close to half the companies operating in Japan's Consumer Durables industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider GRANDES as a stock to potentially avoid with its 1.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for GRANDES

How GRANDES Has Been Performing

As an illustration, revenue has deteriorated at GRANDES over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is GRANDES' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as GRANDES' is when the company's growth is on track to outshine the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.4%. Even so, admirably revenue has lifted 62% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 1.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that GRANDES' P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

GRANDES shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that GRANDES can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You need to take note of risks, for example - GRANDES has 4 warning signs (and 3 which are significant) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.