The Price Is Right For Sumitomo Chemical Company, Limited (TSE:4005)

With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Chemicals industry in Japan, you could be forgiven for feeling indifferent about Sumitomo Chemical Company, Limited's (TSE:4005) P/S ratio of 0.2x. 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.

Check out our latest analysis for Sumitomo Chemical Company

How Sumitomo Chemical Company Has Been Performing

There hasn't been much to differentiate Sumitomo Chemical Company's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Sumitomo Chemical Company will help you uncover what's on the horizon.

How Is Sumitomo Chemical Company's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Sumitomo Chemical Company'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 worthy increase of 4.1%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 5.1% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 4.6% per year over the next three years. With the industry predicted to deliver 5.6% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that Sumitomo Chemical Company's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Sumitomo Chemical Company's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Sumitomo Chemical Company's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you settle on your opinion, we've discovered 2 warning signs for Sumitomo Chemical Company (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Sumitomo Chemical Company, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.