IG Port, Inc.'s (TSE:3791) Stock Retreats 37% But Revenues Haven't Escaped The Attention Of Investors

IG Port, Inc. (TSE:3791) shares have had a horrible month, losing 37% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 29% in the last year.

Although its price has dipped substantially, when almost half of the companies in Japan's Entertainment industry have price-to-sales ratios (or "P/S") below 1.1x, you may still consider IG Port as a stock probably not worth researching with its 1.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for IG Port

How IG Port Has Been Performing

IG Port could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

IG Port's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than 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 6.2%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 21% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 16% during the coming year according to the two analysts following the company. With the rest of the industry predicted to shrink by 0.3%, that would be a fantastic result.

With this in consideration, we understand why IG Port's P/S is a cut above its industry peers. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

The Key Takeaway

Despite the recent share price weakness, IG Port's P/S remains higher than most 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.

As we anticipated, our review of IG Port's analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. At this stage investors feel the potential for a deterioration in revenue is remote enough to justify paying a premium in the form of a high P/S. Questions could still raised over whether this level of outperformance can continue in the context of a a tumultuous industry climate. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for IG Port that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.