KYOTO KIMONO YUZEN HOLDINGS Co., Ltd. (TSE:7615) May Have Run Too Fast Too Soon With Recent 28% Price Plummet

To the annoyance of some shareholders, KYOTO KIMONO YUZEN HOLDINGS Co., Ltd. (TSE:7615) shares are down a considerable 28% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 49% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think KYOTO KIMONO YUZEN HOLDINGS' 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. 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.

View our latest analysis for KYOTO KIMONO YUZEN HOLDINGS

How Has KYOTO KIMONO YUZEN HOLDINGS Performed Recently?

As an illustration, revenue has deteriorated at KYOTO KIMONO YUZEN HOLDINGS over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for KYOTO KIMONO YUZEN HOLDINGS, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 8.4% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 7.7% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that KYOTO KIMONO YUZEN HOLDINGS' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On KYOTO KIMONO YUZEN HOLDINGS' P/S

With its share price dropping off a cliff, the P/S for KYOTO KIMONO YUZEN HOLDINGS 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.

Our look at KYOTO KIMONO YUZEN HOLDINGS revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with KYOTO KIMONO YUZEN HOLDINGS (at least 2 which are a bit unpleasant), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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