Kodama Chemical Industry Co.,Ltd. (TSE:4222) May Have Run Too Fast Too Soon With Recent 28% Price Plummet

Kodama Chemical Industry Co.,Ltd. (TSE:4222) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 13% in the last year.

Although its price has dipped substantially, there still wouldn't be many who think Kodama Chemical IndustryLtd's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Japan's Chemicals industry is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Kodama Chemical IndustryLtd

What Does Kodama Chemical IndustryLtd's Recent Performance Look Like?

The recent revenue growth at Kodama Chemical IndustryLtd would have to be considered satisfactory if not spectacular. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kodama Chemical IndustryLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Kodama Chemical IndustryLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Kodama Chemical IndustryLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.4% last year. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 5.2% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Kodama Chemical IndustryLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Kodama Chemical IndustryLtd's P/S Mean For Investors?

Kodama Chemical IndustryLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Kodama Chemical IndustryLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you take the next step, you should know about the 3 warning signs for Kodama Chemical IndustryLtd (2 make us uncomfortable!) that we have uncovered.

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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.