Market Might Still Lack Some Conviction On KOZO Holdings Co.,Ltd. (TSE:9973) Even After 38% Share Price Boost

KOZO Holdings Co.,Ltd. (TSE:9973) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 83% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about KOZO HoldingsLtd's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Japan is also close to 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

View our latest analysis for KOZO HoldingsLtd

What Does KOZO HoldingsLtd's P/S Mean For Shareholders?

KOZO HoldingsLtd could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is KOZO HoldingsLtd's Revenue Growth Trending?

KOZO HoldingsLtd'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.

If we review the last year of revenue growth, the company posted a worthy increase of 8.9%. Pleasingly, revenue has also lifted 79% 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.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 40,428% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 37%, which is noticeably less attractive.

In light of this, it's curious that KOZO HoldingsLtd's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

KOZO HoldingsLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We've established that KOZO HoldingsLtd currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for KOZO HoldingsLtd you should be aware of, and 2 of them are a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.