Net Protections Holdings, Inc.'s (TSE:7383) Shares Climb 37% But Its Business Is Yet to Catch Up

Net Protections Holdings, Inc. (TSE:7383) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. But the last month did very little to improve the 63% share price decline over the last year.

Even after such a large jump in price, there still wouldn't be many who think Net Protections Holdings' price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Japan's Consumer Finance industry is similar at about 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Net Protections Holdings

What Does Net Protections Holdings' Recent Performance Look Like?

Net Protections Holdings' revenue growth of late has been pretty similar to most other companies. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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Is There Some Revenue Growth Forecasted For Net Protections Holdings?

Net Protections Holdings' 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.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.3% last year. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 16% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 23% per year growth forecast for the broader industry.

With this in mind, we find it intriguing that Net Protections Holdings' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Its shares have lifted substantially and now Net Protections Holdings' P/S is back within range of the industry median. 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.

Given that Net Protections Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you take the next step, you should know about the 1 warning sign for Net Protections Holdings that we have uncovered.

If these risks are making you reconsider your opinion on Net Protections Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.