LAC Co., Ltd. (TSE:3857) Stock Rockets 27% But Many Are Still Ignoring The Company

LAC Co., Ltd. (TSE:3857) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

Although its price has surged higher, considering around half the companies operating in Japan's IT industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider LAC as an solid investment opportunity with its 0.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for LAC

How Has LAC Performed Recently?

The revenue growth achieved at LAC over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic 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 LAC will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/S as low as LAC's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Revenue has also lifted 15% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 6.4% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that LAC is trading at a P/S lower than the industry. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What Does LAC's P/S Mean For Investors?

Despite LAC's 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.

Our examination of LAC revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. medium-term

We don't want to rain on the parade too much, but we did also find 1 warning sign for LAC that you need to be mindful of.

If these risks are making you reconsider your opinion on LAC, 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.