BASE FOOD Inc. (TSE:2936) Looks Just Right With A 37% Price Jump

BASE FOOD Inc. (TSE:2936) shareholders have had their patience rewarded with a 37% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

Since its price has surged higher, when almost half of the companies in Japan's Food industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider BASE FOOD as a stock probably not worth researching with its 1.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for BASE FOOD

What Does BASE FOOD's Recent Performance Look Like?

BASE FOOD has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For BASE FOOD?

In order to justify its P/S ratio, BASE FOOD would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 168% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 4.2%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why BASE FOOD's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

The large bounce in BASE FOOD's shares has lifted the company's P/S handsomely. 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 BASE FOOD revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You should always think about risks. Case in point, we've spotted 2 warning signs for BASE FOOD 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.