Market Participants Recognise Finatext Holdings Ltd.'s (TSE:4419) Revenues Pushing Shares 37% Higher

Finatext Holdings Ltd. (TSE:4419) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 8.1% isn't as impressive.

Following the firm bounce in price, you could be forgiven for thinking Finatext Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.2x, considering almost half the companies in Japan's IT industry have P/S ratios below 1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for Finatext Holdings

How Has Finatext Holdings Performed Recently?

Recent times have been advantageous for Finatext Holdings as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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

In order to justify its P/S ratio, Finatext Holdings would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. The latest three year period has also seen an excellent 155% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 42% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 7.4%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Finatext Holdings' 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.

The Key Takeaway

Shares in Finatext Holdings have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 look into Finatext Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Finatext Holdings that you need to take into consideration.

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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.