The Market Lifts Japan Tissue Engineering Co., Ltd. (TSE:7774) Shares 35% But It Can Do More

Japan Tissue Engineering Co., Ltd. (TSE:7774) shareholders have had their patience rewarded with a 35% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 31% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Japan Tissue Engineering's P/S ratio of 11.6x, since the median price-to-sales (or "P/S") ratio for the Biotechs industry in Japan is also close to 10.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Japan Tissue Engineering

What Does Japan Tissue Engineering's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Japan Tissue Engineering has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Japan Tissue Engineering's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Japan Tissue Engineering's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. As a result, it also grew revenue by 8.6% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 69% over the next year. That's shaping up to be materially higher than the 20% growth forecast for the broader industry.

With this information, we find it interesting that Japan Tissue Engineering is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now Japan Tissue Engineering's P/S is back within range of the industry median. 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.

We've established that Japan Tissue Engineering currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Japan Tissue Engineering with six simple checks will allow you to discover any risks that could be an issue.

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.