A Piece Of The Puzzle Missing From SAKURASAKU PLUS,Co.,Ltd.'s (TSE:7097) 30% Share Price Climb

SAKURASAKU PLUS,Co.,Ltd. (TSE:7097) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

In spite of the firm bounce in price, given about 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 SAKURASAKU PLUSCo.Ltd as an attractive investment with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for SAKURASAKU PLUSCo.Ltd

How Has SAKURASAKU PLUSCo.Ltd Performed Recently?

Revenue has risen firmly for SAKURASAKU PLUSCo.Ltd recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction 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 SAKURASAKU PLUSCo.Ltd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a decent 9.8% gain to the company's revenues. Pleasingly, revenue has also lifted 58% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 9.8% shows it's noticeably more attractive.

With this in mind, we find it intriguing that SAKURASAKU PLUSCo.Ltd's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Despite SAKURASAKU PLUSCo.Ltd's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of SAKURASAKU PLUSCo.Ltd revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 4 warning signs for SAKURASAKU PLUSCo.Ltd you should be aware of, and 2 of them don't sit too well with us.

If you're unsure about the strength of SAKURASAKU PLUSCo.Ltd'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.