Spacemarket,Inc. (TSE:4487) Not Lagging Industry On Growth Or Pricing

When you see that almost half of the companies in the Consumer Services industry in Japan have price-to-sales ratios (or "P/S") below 0.7x, Spacemarket,Inc. (TSE:4487) looks to be giving off some sell signals 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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See our latest analysis for SpacemarketInc

How SpacemarketInc Has Been Performing

The revenue growth achieved at SpacemarketInc over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is SpacemarketInc's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The strong recent performance means it was also able to grow revenue by 74% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 9.1% shows it's noticeably more attractive.

In light of this, it's understandable that SpacemarketInc's 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.

What Does SpacemarketInc's P/S Mean For Investors?

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.

We've established that SpacemarketInc maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. 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 - SpacemarketInc has 2 warning signs (and 1 which makes us a bit uncomfortable) 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.