Stock Analysis

Sentiment Still Eluding Sumitomo Pharma Co., Ltd. (TSE:4506)

TSE:4506
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You may think that with a price-to-sales (or "P/S") ratio of 0.6x Sumitomo Pharma Co., Ltd. (TSE:4506) is a stock worth checking out, seeing as almost half of all the Pharmaceuticals companies in Japan have P/S ratios greater than 1.9x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Sumitomo Pharma

ps-multiple-vs-industry
TSE:4506 Price to Sales Ratio vs Industry January 11th 2025

What Does Sumitomo Pharma's Recent Performance Look Like?

Sumitomo Pharma could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sumitomo Pharma.

How Is Sumitomo Pharma's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Sumitomo Pharma's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 3.2% per year over the next three years. With the industry predicted to deliver 5.1% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Sumitomo Pharma's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What Does Sumitomo Pharma's P/S Mean For Investors?

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 Sumitomo Pharma's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for Sumitomo Pharma that you need to take into consideration.

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.