itsumo.inc. (TSE:7694) Shares Fly 35% But Investors Aren't Buying For Growth

itsumo.inc. (TSE:7694) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Although its price has surged higher, given about half the companies operating in Japan's Media industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider itsumo.inc as an attractive investment with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for itsumo.inc

How Has itsumo.inc Performed Recently?

The recent revenue growth at itsumo.inc would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for itsumo.inc, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

itsumo.inc's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 59% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why itsumo.inc's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On itsumo.inc's P/S

Despite itsumo.inc's share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of itsumo.inc confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

There are also other vital risk factors to consider and we've discovered 3 warning signs for itsumo.inc (2 shouldn't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of itsumo.inc's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.