Further Upside For DIGITAL HEARTS HOLDINGS Co., Ltd. (TSE:3676) Shares Could Introduce Price Risks After 27% Bounce

Despite an already strong run, DIGITAL HEARTS HOLDINGS Co., Ltd. (TSE:3676) shares have been powering on, with a gain of 27% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.6% over the last year.

Even after such a large jump in price, it would still be understandable if you think DIGITAL HEARTS HOLDINGS is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in Japan's IT industry have P/S ratios above 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for DIGITAL HEARTS HOLDINGS

How Has DIGITAL HEARTS HOLDINGS Performed Recently?

DIGITAL HEARTS HOLDINGS' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on DIGITAL HEARTS HOLDINGS.

How Is DIGITAL HEARTS HOLDINGS' Revenue Growth Trending?

In order to justify its P/S ratio, DIGITAL HEARTS HOLDINGS would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.4% last year. This was backed up an excellent period prior to see revenue up by 56% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 10.0% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.9%, which is noticeably less attractive.

With this in consideration, we find it intriguing that DIGITAL HEARTS HOLDINGS' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On DIGITAL HEARTS HOLDINGS' P/S

Despite DIGITAL HEARTS HOLDINGS' share price climbing recently, its P/S still lags most other companies. 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.

A look at DIGITAL HEARTS HOLDINGS' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for DIGITAL HEARTS HOLDINGS that you should be aware of.

If these risks are making you reconsider your opinion on DIGITAL HEARTS HOLDINGS, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.