There's No Escaping AHC Group Inc.'s (TSE:7083) Muted Revenues Despite A 33% Share Price Rise

AHC Group Inc. (TSE:7083) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

Although its price has surged higher, when close to half the companies operating in Japan's Consumer Services industry have price-to-sales ratios (or "P/S") above 0.9x, you may still consider AHC Group as an enticing stock to check out with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for AHC Group

How Has AHC Group Performed Recently?

AHC Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on AHC Group will help you uncover what's on the horizon.

How Is AHC Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as AHC Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 53% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 6.4% over the next year. With the industry predicted to deliver 9.7% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that AHC Group's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite AHC Group's share price climbing recently, its P/S still lags most other companies. 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.

As expected, our analysis of AHC Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for AHC Group (2 can't be ignored!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.