TORIDOLL Holdings Corporation's (TSE:3397) Shares Climb 25% But Its Business Is Yet to Catch Up

Explore TORIDOLL Holdings's Fair Values from the Community and select yours

The TORIDOLL Holdings Corporation (TSE:3397) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 48%.

Following the firm bounce in price, when almost half of the companies in Japan's Hospitality industry have price-to-sales ratios (or "P/S") below 1x, you may consider TORIDOLL Holdings as a stock probably not worth researching with its 1.7x 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.

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View our latest analysis for TORIDOLL Holdings

How TORIDOLL Holdings Has Been Performing

Recent times haven't been great for TORIDOLL Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on TORIDOLL Holdings.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, TORIDOLL Holdings would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen an excellent 70% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 6.2% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 7.8%, which is not materially different.

With this in consideration, we find it intriguing that TORIDOLL Holdings' P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What Does TORIDOLL Holdings' P/S Mean For Investors?

The large bounce in TORIDOLL Holdings' shares has lifted the company's P/S handsomely. 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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that TORIDOLL Holdings currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for TORIDOLL Holdings that you should be aware of.

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.