Why Investors Shouldn't Be Surprised By Rakuten Group, Inc.'s (TSE:4755) P/S

There wouldn't be many who think Rakuten Group, Inc.'s (TSE:4755) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Multiline Retail industry in Japan is very similar. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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What Does Rakuten Group's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Rakuten Group has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Rakuten Group'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 11% last year. Pleasingly, revenue has also lifted 34% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.5% per year over the next three years. With the industry predicted to deliver 6.0% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that Rakuten Group's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Rakuten Group's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Rakuten Group's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Rakuten Group with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Rakuten Group'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.