Stock Analysis

TAC Co.,Ltd.'s (TSE:4319) Shares Bounce 35% But Its Business Still Trails The Industry

TSE:4319
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TAC Co.,Ltd. (TSE:4319) shareholders have had their patience rewarded with a 35% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Even after such a large jump in price, when close to half the companies operating in Japan's Consumer Services industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider TACLtd as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for TACLtd

ps-multiple-vs-industry
TSE:4319 Price to Sales Ratio vs Industry November 6th 2024

What Does TACLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at TACLtd over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TACLtd's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For TACLtd?

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

Retrospectively, the last year delivered a frustrating 2.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.7% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 10% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that TACLtd's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On TACLtd's P/S

The latest share price surge wasn't enough to lift TACLtd's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of TACLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with TACLtd (including 1 which is significant).

If you're unsure about the strength of TACLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're here to simplify it.

Discover if TACLtd might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.