IRRC Corporation's (TSE:7325) Shares Leap 35% Yet They're Still Not Telling The Full Story

IRRC Corporation (TSE:7325) shareholders have had their patience rewarded with a 35% share price jump in the last month. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, it's still not a stretch to say that IRRC's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Insurance industry in Japan, where the median P/S ratio is around 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for IRRC

How IRRC Has Been Performing

IRRC 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is IRRC's Revenue Growth Trending?

In order to justify its P/S ratio, IRRC would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Pleasingly, revenue has also lifted 57% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 9.4% each year as estimated by the lone analyst watching the company. With the industry only predicted to deliver 0.4% per annum, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that IRRC's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Its shares have lifted substantially and now IRRC's P/S is back within range of the industry median. 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.

Looking at IRRC's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware IRRC is showing 5 warning signs in our investment analysis, you should know about.

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