After Leaping 67% PKSHA Technology Inc. (TSE:3993) Shares Are Not Flying Under The Radar

Despite an already strong run, PKSHA Technology Inc. (TSE:3993) shares have been powering on, with a gain of 67% in the last thirty days. The last month tops off a massive increase of 230% in the last year.

Since its price has surged higher, when almost half of the companies in Japan's Software industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider PKSHA Technology as a stock not worth researching with its 13.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for PKSHA Technology

How PKSHA Technology Has Been Performing

With revenue growth that's superior to most other companies of late, PKSHA Technology has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is PKSHA Technology's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like PKSHA Technology's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The latest three year period has also seen an excellent 90% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 17% as estimated by the three analysts watching the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why PKSHA Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does PKSHA Technology's P/S Mean For Investors?

PKSHA Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of PKSHA Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for PKSHA Technology (of which 1 is significant!) you should know about.

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