Sunwels Co.,Ltd.'s (TSE:9229) Shares Leap 30% Yet They're Still Not Telling The Full Story

Sunwels Co.,Ltd. (TSE:9229) shareholders have had their patience rewarded with a 30% share price jump in the last month. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 70% share price drop in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that SunwelsLtd's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Healthcare industry in Japan, where the median P/S ratio is around 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for SunwelsLtd

What Does SunwelsLtd's Recent Performance Look Like?

SunwelsLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think SunwelsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For SunwelsLtd?

The only time you'd be comfortable seeing a P/S like SunwelsLtd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 32%. The latest three year period has also seen an excellent 224% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 16% each year over the next three years. With the industry only predicted to deliver 3.7% each year, the company is positioned for a stronger revenue result.

In light of this, it's curious that SunwelsLtd's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

SunwelsLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that SunwelsLtd currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Having said that, be aware SunwelsLtd is showing 1 warning sign in our investment analysis, you should know about.

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