Japan Investment Adviser Co., Ltd.'s (TSE:7172) Share Price Is Still Matching Investor Opinion Despite 35% Slump

Japan Investment Adviser Co., Ltd. (TSE:7172) shares have had a horrible month, losing 35% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

Even after such a large drop in price, you could still be forgiven for thinking Japan Investment Adviser is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in Japan's Diversified Financial industry have P/S ratios below 1.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Japan Investment Adviser

How Has Japan Investment Adviser Performed Recently?

Recent times have been advantageous for Japan Investment Adviser as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Japan Investment Adviser.

How Is Japan Investment Adviser's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Japan Investment Adviser's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 93%. Pleasingly, revenue has also lifted 121% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 19% over the next year. That's shaping up to be materially higher than the 7.4% growth forecast for the broader industry.

In light of this, it's understandable that Japan Investment Adviser's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Japan Investment Adviser's P/S

Japan Investment Adviser's P/S remain high even after its stock plunged. 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 Japan Investment Adviser maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Diversified Financial industry, as expected. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Japan Investment Adviser (3 are concerning) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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