DKS Co. Ltd. (TSE:4461) Stock Rockets 30% But Many Are Still Ignoring The Company

DKS Co. Ltd. (TSE:4461) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 13% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think DKS' 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. 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.

We've discovered 2 warning signs about DKS. View them for free.

Check out our latest analysis for DKS

How DKS Has Been Performing

With revenue growth that's superior to most other companies of late, DKS has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 analyst estimates for the company? Then our free report on DKS will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The latest three year period has also seen a 15% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.3% each year during the coming three years according to the sole analyst following the company. That's shaping up to be materially higher than the 4.7% each year growth forecast for the broader industry.

With this information, we find it interesting that DKS is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does DKS' P/S Mean For Investors?

DKS appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

Despite enticing revenue growth figures that outpace the industry, DKS' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

It is also worth noting that we have found 2 warning signs for DKS that you need to take into consideration.

If you're unsure about the strength of DKS' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.