VELTRA Corporation's (TSE:7048) Share Price Matching Investor Opinion

When close to half the companies in the Hospitality industry in Japan have price-to-sales ratios (or "P/S") below 0.9x, you may consider VELTRA Corporation (TSE:7048) as a stock to avoid entirely with its 2.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for VELTRA

What Does VELTRA's Recent Performance Look Like?

VELTRA certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. 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.

How Is VELTRA's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 92% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 11% shows it's noticeably more attractive.

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.

What We Can Learn From VELTRA's P/S?

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.

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. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

We don't want to rain on the parade too much, but we did also find 4 warning signs for VELTRA (1 is a bit unpleasant!) that you need to be mindful of.

If these risks are making you reconsider your opinion on VELTRA, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.