After Leaping 25% JALCO Holdings Inc. (TSE:6625) Shares Are Not Flying Under The Radar

The JALCO Holdings Inc. (TSE:6625) share price has done very well over the last month, posting an excellent gain of 25%. Notwithstanding the latest gain, the annual share price return of 2.7% isn't as impressive.

Following the firm bounce in price, you could be forgiven for thinking JALCO Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6x, considering almost half the companies in Japan's Real Estate industry have P/S ratios below 0.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for JALCO Holdings

How JALCO Holdings Has Been Performing

For instance, JALCO Holdings' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For JALCO Holdings?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 45%. Even so, admirably revenue has lifted 146% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.8% shows it's noticeably more attractive.

With this information, we can see why JALCO Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From JALCO Holdings' P/S?

The strong share price surge has lead to JALCO Holdings' P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that JALCO Holdings can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

We don't want to rain on the parade too much, but we did also find 4 warning signs for JALCO Holdings (2 are a bit unpleasant!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.