The Price Is Right For Sakai Chemical Industry Co., Ltd. (TSE:4078) Even After Diving 26%

Sakai Chemical Industry Co., Ltd. (TSE:4078) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 15% in the last year.

Although its price has dipped substantially, there still wouldn't be many who think Sakai Chemical Industry's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Japan's Chemicals industry is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Sakai Chemical Industry

How Has Sakai Chemical Industry Performed Recently?

Sakai Chemical Industry's negative revenue growth of late has neither been better nor worse than most other companies. Perhaps the market is expecting future revenue performance to continue matching the industry, which has kept the P/S in line with expectations. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. At the very least, you'd be hoping that revenue doesn't accelerate downwards if your plan is to pick up some stock while it's not in favour.

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

Is There Some Revenue Growth Forecasted For Sakai Chemical Industry?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.1%. As a result, revenue from three years ago have also fallen 3.3% overall. 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 lone analyst covering the company suggest revenue should grow by 4.2% each year over the next three years. That's shaping up to be similar to the 6.1% per year growth forecast for the broader industry.

In light of this, it's understandable that Sakai Chemical Industry'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.

The Bottom Line On Sakai Chemical Industry's P/S

With its share price dropping off a cliff, the P/S for Sakai Chemical Industry looks to be in line with the rest of the Chemicals industry. 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.

A Sakai Chemical Industry's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Chemicals industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Before you take the next step, you should know about the 2 warning signs for Sakai Chemical Industry (1 is a bit concerning!) that we have uncovered.

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.

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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.

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