Even With A 28% Surge, Cautious Investors Are Not Rewarding Ohmura Shigyo Co.,Ltd.'s (TSE:3953) Performance Completely

Ohmura Shigyo Co.,Ltd. (TSE:3953) shareholders have had their patience rewarded with a 28% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 8.8% isn't as attractive.

Although its price has surged higher, there still wouldn't be many who think Ohmura ShigyoLtd's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Japan's Packaging industry is similar at about 0.3x. 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.

View our latest analysis for Ohmura ShigyoLtd

How Has Ohmura ShigyoLtd Performed Recently?

Revenue has risen at a steady rate over the last year for Ohmura ShigyoLtd, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Ohmura ShigyoLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Ohmura ShigyoLtd'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.

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. The latest three year period has also seen a 17% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 2.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Ohmura ShigyoLtd's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Ohmura ShigyoLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We didn't quite envision Ohmura ShigyoLtd's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You need to take note of risks, for example - Ohmura ShigyoLtd has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.