What You Can Learn From JTEC Corporation's (TSE:3446) P/S

When close to half the companies in the Medical Equipment industry in Japan have price-to-sales ratios (or "P/S") below 1.6x, you may consider JTEC Corporation (TSE:3446) as a stock to potentially avoid with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for JTEC

What Does JTEC's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, JTEC has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Is There Enough Revenue Growth Forecasted For JTEC?

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

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 89% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 45% as estimated by the sole analyst watching the company. With the industry only predicted to deliver 3.8%, the company is positioned for a stronger revenue result.

With this information, we can see why JTEC is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From JTEC's P/S?

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.

Our look into JTEC shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with JTEC (including 1 which can't be ignored).

If these risks are making you reconsider your opinion on JTEC, 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.