VELTRA Corporation's (TSE:7048) P/S Is On The Mark

VELTRA Corporation's (TSE:7048) price-to-sales (or "P/S") ratio of 2.6x may not look like an appealing investment opportunity when you consider close to half the companies in the Hospitality industry in Japan have P/S ratios below 0.9x. 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.

Our free stock report includes 2 warning signs investors should be aware of before investing in VELTRA. Read for free now.

See our latest analysis for VELTRA

What Does VELTRA's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, VELTRA has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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 VELTRA's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 38% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 9.5%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why VELTRA's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On VELTRA's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that VELTRA 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. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for VELTRA you should be aware of, and 1 of them can't be ignored.

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

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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.