Kyoei Tanker Co., Ltd. (TSE:9130) Doing What It Can To Lift Shares

It's not a stretch to say that Kyoei Tanker Co., Ltd.'s (TSE:9130) price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" for companies in the Oil and Gas industry in Japan, where the median P/S ratio is around 0.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for Kyoei Tanker

What Does Kyoei Tanker's Recent Performance Look Like?

The recent revenue growth at Kyoei Tanker would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kyoei Tanker will help you shine a light on its historical performance.

How Is Kyoei Tanker's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Kyoei Tanker's to be considered reasonable.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 20% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

In contrast to the company, the rest of the industry is expected to decline by 4.2% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it odd that Kyoei Tanker is trading at a fairly similar P/S to the industry. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

What We Can Learn From Kyoei Tanker's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As mentioned previously, Kyoei Tanker currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Kyoei Tanker (of which 1 is significant!) you should know about.

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

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.