Further Upside For GRANDES, Inc. (TSE:3261) Shares Could Introduce Price Risks After 26% Bounce

Despite an already strong run, GRANDES, Inc. (TSE:3261) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 71% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think GRANDES' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when it essentially matches the median P/S in Japan's Consumer Durables industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for GRANDES

How GRANDES Has Been Performing

Recent times have been quite advantageous for GRANDES as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for GRANDES, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is GRANDES' Revenue Growth Trending?

In order to justify its P/S ratio, GRANDES would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 43%. Pleasingly, revenue has also lifted 175% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 2.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that GRANDES' 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 Bottom Line On GRANDES' P/S

GRANDES' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

To our surprise, GRANDES revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with GRANDES (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.