MarketEnterprise Co.,Ltd (TSE:3135) Might Not Be As Mispriced As It Looks After Plunging 27%

MarketEnterprise Co.,Ltd (TSE:3135) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

Even after such a large drop in price, there still wouldn't be many who think MarketEnterpriseLtd's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Japan's Specialty Retail industry is similar at about 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for MarketEnterpriseLtd

How MarketEnterpriseLtd Has Been Performing

The revenue growth achieved at MarketEnterpriseLtd over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic 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 MarketEnterpriseLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For MarketEnterpriseLtd?

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

If we review the last year of revenue growth, the company posted a terrific increase of 19%. Pleasingly, revenue has also lifted 56% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 7.7%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that MarketEnterpriseLtd 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 Bottom Line On MarketEnterpriseLtd's P/S

With its share price dropping off a cliff, the P/S for MarketEnterpriseLtd looks to be in line with the rest of the Specialty Retail industry. 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.

We've established that MarketEnterpriseLtd currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for MarketEnterpriseLtd (2 are a bit unpleasant!) that you need to be mindful of.

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.

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