Why Investors Shouldn't Be Surprised By SpiderPlus & Co.'s (TSE:4192) P/S

When you see that almost half of the companies in the Software industry in Japan have price-to-sales ratios (or "P/S") below 2x, SpiderPlus & Co. (TSE:4192) looks to be giving off some sell signals with its 3.8x 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 as high as it is.

See our latest analysis for SpiderPlus

What Does SpiderPlus' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, SpiderPlus has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on SpiderPlus will help you uncover what's on the horizon.

How Is SpiderPlus' Revenue Growth Trending?

In order to justify its P/S ratio, SpiderPlus would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. Pleasingly, revenue has also lifted 81% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 41% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 12% growth forecast for the broader industry.

In light of this, it's understandable that SpiderPlus' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of SpiderPlus' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - SpiderPlus has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.