GMO internet, Inc. (TSE:4784) Stocks Pounded By 25% But Not Lagging Industry On Growth Or Pricing

To the annoyance of some shareholders, GMO internet, Inc. (TSE:4784) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The good news is that in the last year, the stock has shone bright like a diamond, gaining 174%.

In spite of the heavy fall in price, when almost half of the companies in Japan's Media industry have price-to-sales ratios (or "P/S") below 0.9x, you may still consider GMO internet as a stock not worth researching with its 7.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for GMO internet

What Does GMO internet's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, GMO internet has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on GMO internet will help you uncover what's on the horizon.

How Is GMO internet's Revenue Growth Trending?

In order to justify its P/S ratio, GMO internet would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 238%. Pleasingly, revenue has also lifted 81% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 84% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 8.9% growth forecast for the broader industry.

In light of this, it's understandable that GMO internet's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On GMO internet's P/S

A significant share price dive has done very little to deflate GMO internet's very lofty P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of GMO internet's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - GMO internet has 2 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.