Yamato Mobility & Mfg. Co.,Ltd. (TSE:7886) Stocks Shoot Up 42% But Its P/S Still Looks Reasonable

Yamato Mobility & Mfg. Co.,Ltd. (TSE:7886) shareholders have had their patience rewarded with a 42% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Yamato Mobility & Mfg.Ltd's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in Japan is also close to 0.6x. 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.

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View our latest analysis for Yamato Mobility & Mfg.Ltd

What Does Yamato Mobility & Mfg.Ltd's P/S Mean For Shareholders?

The recent revenue growth at Yamato Mobility & Mfg.Ltd would have to be considered satisfactory if not spectacular. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Yamato Mobility & Mfg.Ltd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Yamato Mobility & Mfg.Ltd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

If we review the last year of revenue growth, the company posted a worthy increase of 4.6%. The latest three year period has also seen a 13% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 2.2% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we can see why Yamato Mobility & Mfg.Ltd is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Yamato Mobility & Mfg.Ltd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the 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.

It appears to us that Yamato Mobility & Mfg.Ltd maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Yamato Mobility & Mfg.Ltd (1 is a bit concerning) you should be aware of.

If you're unsure about the strength of Yamato Mobility & Mfg.Ltd's 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.