Daiichi Kigenso Kagaku Kogyo Co., Ltd. (TSE:4082) Looks Just Right With A 101% Price Jump

Daiichi Kigenso Kagaku Kogyo Co., Ltd. (TSE:4082) shareholders have had their patience rewarded with a 101% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Daiichi Kigenso Kagaku Kogyo's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in Japan is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Daiichi Kigenso Kagaku Kogyo

What Does Daiichi Kigenso Kagaku Kogyo's P/S Mean For Shareholders?

Daiichi Kigenso Kagaku Kogyo hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Daiichi Kigenso Kagaku Kogyo's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

Daiichi Kigenso Kagaku Kogyo'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.

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 5.7%. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 3.7% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 2.4%, which is not materially different.

With this information, we can see why Daiichi Kigenso Kagaku Kogyo is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Daiichi Kigenso Kagaku Kogyo's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that Daiichi Kigenso Kagaku Kogyo maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Daiichi Kigenso Kagaku Kogyo (at least 1 which is concerning), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.