3-D Matrix, Ltd.'s (TSE:7777) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Despite an already strong run, 3-D Matrix, Ltd. (TSE:7777) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 206% in the last year.

Although its price has surged higher, 3-D Matrix may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 5.1x, since almost half of all companies in the Biotechs industry in Japan have P/S ratios greater than 15.7x and even P/S higher than 214x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View our latest analysis for 3-D Matrix

How Has 3-D Matrix Performed Recently?

Recent times have been quite advantageous for 3-D Matrix as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on 3-D Matrix will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For 3-D Matrix?

In order to justify its P/S ratio, 3-D Matrix would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 46% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 248% shows it's noticeably less attractive.

With this information, we can see why 3-D Matrix is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does 3-D Matrix's P/S Mean For Investors?

Shares in 3-D Matrix have risen appreciably however, its P/S is still subdued. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of 3-D Matrix revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with 3-D Matrix (including 2 which are significant).

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.