Investors Appear Satisfied With GMO internet, Inc.'s (TSE:4784) Prospects As Shares Rocket 28%

Despite an already strong run, GMO internet, Inc. (TSE:4784) shares have been powering on, with a gain of 28% in the last thirty days. This latest share price bounce rounds out a remarkable 852% gain over the last twelve months.

After such a large jump in price, you could be forgiven for thinking GMO internet is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 30.5x, considering almost half the companies in Japan's Media industry have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in GMO internet. Read for free now.

Check out our latest analysis for GMO internet

What Does GMO internet's Recent Performance Look Like?

Recent times have been advantageous for GMO internet as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like GMO internet's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 103% gain to the company's top line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 174% over the next year. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

With this information, we can see why GMO internet is trading at such a high P/S compared to the industry. 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

GMO internet's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our look into GMO internet shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 2 warning signs for GMO internet you should know about.

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.