Nipro Corporation's (TSE:8086) Revenues Are Not Doing Enough For Some Investors

When you see that almost half of the companies in the Medical Equipment industry in Japan have price-to-sales ratios (or "P/S") above 1.7x, Nipro Corporation (TSE:8086) looks to be giving off some buy signals with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Nipro

How Nipro Has Been Performing

Nipro could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nipro.

Do Revenue Forecasts Match The Low P/S Ratio?

Nipro's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.4%. The latest three year period has also seen a 29% overall rise in revenue, aided somewhat by its short-term performance. 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 4.0% per annum during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 8.1% per year growth forecast for the broader industry.

In light of this, it's understandable that Nipro's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As we suspected, our examination of Nipro's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Nipro (at least 2 which make us uncomfortable), and understanding them should be part of your investment process.

If you're unsure about the strength of Nipro'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.