What You Can Learn From Sakai Chemical Industry Co., Ltd.'s (TSE:4078) P/S

There wouldn't be many who think Sakai Chemical Industry Co., Ltd.'s (TSE:4078) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Chemicals industry in Japan is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Sakai Chemical Industry

What Does Sakai Chemical Industry's Recent Performance Look Like?

There hasn't been much to differentiate Sakai Chemical Industry's and the industry's retreating revenue lately. The P/S ratio is probably moderate because investors think the company's revenue trend will continue to follow the rest of the industry. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues tracking the industry.

Keen to find out how analysts think Sakai Chemical Industry'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 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 4.1%. The last three years don't look nice either as the company has shrunk revenue by 3.4% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.6% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 6.5%, which is not materially different.

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

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.

Our look at Sakai Chemical Industry'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. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sakai Chemical Industry (1 shouldn't be ignored!) that you need to be mindful of.

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.