A Piece Of The Puzzle Missing From SHINTO Holdings, Inc.'s (TSE:2776) 30% Share Price Climb

The SHINTO Holdings, Inc. (TSE:2776) share price has done very well over the last month, posting an excellent gain of 30%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think SHINTO Holdings' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Japan's Retail Distributors industry is similar at about 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

See our latest analysis for SHINTO Holdings

What Does SHINTO Holdings' P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, SHINTO Holdings has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is SHINTO Holdings' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 220%. The latest three year period has also seen an excellent 292% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that SHINTO Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does SHINTO Holdings' P/S Mean For Investors?

SHINTO Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that SHINTO Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Having said that, be aware SHINTO Holdings is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If these risks are making you reconsider your opinion on SHINTO Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.