Sentiment Still Eluding Akatsuki Inc. (TSE:3932)

With a median price-to-sales (or "P/S") ratio of close to 1.2x in the Entertainment industry in Japan, you could be forgiven for feeling indifferent about Akatsuki Inc.'s (TSE:3932) P/S ratio of 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Akatsuki

What Does Akatsuki's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Akatsuki's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The P/S Ratio?

Akatsuki's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%. The last three years don't look nice either as the company has shrunk revenue by 29% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 9.9% as estimated by the four analysts watching the company. Meanwhile, the broader industry is forecast to contract by 0.09%, which would indicate the company is doing very well.

With this in mind, we find it intriguing that Akatsuki's P/S trades in-line with its industry peers. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.

The Final Word

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.

Our examination of Akatsuki's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Akatsuki (1 can't be ignored!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.