Hamayuu Co.,Ltd. (TSE:7682) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

The Hamayuu Co.,Ltd. (TSE:7682) share price has fared very poorly over the last month, falling by a substantial 27%. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Although its price has dipped substantially, there still wouldn't be many who think HamayuuLtd's price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in Japan's Hospitality industry is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for HamayuuLtd

How HamayuuLtd Has Been Performing

HamayuuLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic 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 HamayuuLtd's earnings, revenue and cash flow.

How Is HamayuuLtd's Revenue Growth Trending?

HamayuuLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 35% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 12% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that HamayuuLtd's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Final Word

With its share price dropping off a cliff, the P/S for HamayuuLtd looks to be in line with the rest of the Hospitality industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we've seen, HamayuuLtd's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

You always need to take note of risks, for example - HamayuuLtd has 2 warning signs we think you should be aware of.

If you're unsure about the strength of HamayuuLtd'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com