SHINTO Holdings, Inc. (TSE:2776) Soars 79% But It's A Story Of Risk Vs Reward

SHINTO Holdings, Inc. (TSE:2776) shareholders have had their patience rewarded with a 79% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about SHINTO Holdings' P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Retail Distributors industry in Japan is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for SHINTO Holdings

How SHINTO Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, SHINTO Holdings has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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.

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.

Is There Some Revenue Growth Forecasted For SHINTO Holdings?

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

Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 17% shows it's noticeably more attractive.

With this information, we find it interesting that SHINTO Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now SHINTO Holdings' P/S is back within range of the industry median. 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. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider and we've discovered 3 warning signs for SHINTO Holdings (2 are a bit concerning!) that you should be aware of before investing here.

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.