Emergency Assistance Japan Co., Ltd.'s (TSE:6063) Shares Climb 30% But Its Business Is Yet to Catch Up

The Emergency Assistance Japan Co., Ltd. (TSE:6063) share price has done very well over the last month, posting an excellent gain of 30%. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, there still wouldn't be many who think Emergency Assistance Japan's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Japan's Healthcare industry is similar at about 0.6x. 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.

See our latest analysis for Emergency Assistance Japan

What Does Emergency Assistance Japan's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Emergency Assistance Japan over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Emergency Assistance Japan's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Emergency Assistance Japan?

Emergency Assistance Japan's 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 33%. This means it has also seen a slide in revenue over the longer-term as revenue is down 14% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.0% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Emergency Assistance Japan's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Emergency Assistance Japan's P/S?

Its shares have lifted substantially and now Emergency Assistance Japan's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Emergency Assistance Japan revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware Emergency Assistance Japan is showing 3 warning signs in our investment analysis, and 1 of those is concerning.

If you're unsure about the strength of Emergency Assistance Japan's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.