Market Might Still Lack Some Conviction On Ubiquitous AI Corporation (TSE:3858) Even After 37% Share Price Boost

Ubiquitous AI Corporation (TSE:3858) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

Even after such a large jump in price, Ubiquitous AI may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.2x, considering almost half of all companies in the Software industry in Japan have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ubiquitous AI

What Does Ubiquitous AI's Recent Performance Look Like?

Ubiquitous AI certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ubiquitous AI will help you shine a light on its historical performance.

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

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

Retrospectively, the last year delivered an exceptional 66% gain to the company's top line. Pleasingly, revenue has also lifted 97% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 12% shows it's noticeably more attractive.

In light of this, it's peculiar that Ubiquitous AI's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite Ubiquitous AI's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Ubiquitous AI revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Ubiquitous AI (1 shouldn't be ignored) you should be aware of.

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.