After Leaping 28% Inforich Inc. (TSE:9338) Shares Are Not Flying Under The Radar

Despite an already strong run, Inforich Inc. (TSE:9338) shares have been powering on, with a gain of 28% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 6.4% isn't as impressive.

After such a large jump in price, given around half the companies in Japan's Consumer Services industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider Inforich as a stock to avoid entirely with its 5x 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 Inforich

How Inforich Has Been Performing

Inforich certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Inforich?

In order to justify its P/S ratio, Inforich would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 42% 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. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 33% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 20% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Inforich's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Inforich's P/S Mean For Investors?

Inforich's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 we suspected, our examination of Inforich's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Inforich that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.