After Leaping 26% Mobile Factory, Inc. (TSE:3912) Shares Are Not Flying Under The Radar

Mobile Factory, Inc. (TSE:3912) shareholders have had their patience rewarded with a 26% 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.

After such a large jump in price, given close to half the companies operating in Japan's Entertainment industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Mobile Factory as a stock to potentially avoid with its 1.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Mobile Factory

What Does Mobile Factory's Recent Performance Look Like?

Mobile Factory could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Mobile Factory?

Mobile Factory's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.5%. The solid recent performance means it was also able to grow revenue by 19% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 8.1% during the coming year according to the one analyst following the company. Meanwhile, the broader industry is forecast to contract by 2.7%, which would indicate the company is doing very well.

With this in consideration, we understand why Mobile Factory's P/S is a cut above its industry peers. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

The Bottom Line On Mobile Factory's P/S

The large bounce in Mobile Factory's shares has lifted the company's P/S handsomely. 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 can see that Mobile Factory maintains its high P/S on the strength of its forecast growth potentially beating a struggling industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. 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 2 warning signs for Mobile Factory 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com