TOKYO BASE Co.,Ltd.'s (TSE:3415) Shareholders Might Be Looking For Exit

There wouldn't be many who think TOKYO BASE Co.,Ltd.'s (TSE:3415) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Specialty Retail industry in Japan 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 TOKYO BASELtd

What Does TOKYO BASELtd's Recent Performance Look Like?

TOKYO BASELtd could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think TOKYO BASELtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is TOKYO BASELtd's Revenue Growth Trending?

TOKYO BASELtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.4% last year. Pleasingly, revenue has also lifted 37% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 3.9% per annum over the next three years. With the industry predicted to deliver 7.5% growth per year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that TOKYO BASELtd's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

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.

Our look at the analysts forecasts of TOKYO BASELtd's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 2 warning signs we've spotted with TOKYO BASELtd.

If you're unsure about the strength of TOKYO BASELtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.