ExaWizards Inc.'s (TSE:4259) Share Price Is Still Matching Investor Opinion Despite 26% Slump

ExaWizards Inc. (TSE:4259) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.

Although its price has dipped substantially, when almost half of the companies in Japan's IT industry have price-to-sales ratios (or "P/S") below 1.1x, you may still consider ExaWizards as a stock probably not worth researching with its 2.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for ExaWizards

What Does ExaWizards' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, ExaWizards has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For ExaWizards?

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

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. Pleasingly, revenue has also lifted 104% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 21% as estimated by the three analysts watching the company. With the industry only predicted to deliver 7.3%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why ExaWizards' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does ExaWizards' P/S Mean For Investors?

There's still some elevation in ExaWizards' P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ExaWizards' 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.

You always need to take note of risks, for example - ExaWizards has 1 warning sign we think you should be aware of.

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