Access Co., Ltd. (TSE:4813) Stocks Pounded By 26% But Not Lagging Industry On Growth Or Pricing

Access Co., Ltd. (TSE:4813) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 71% in the last year.

In spite of the heavy fall in price, you could still be forgiven for thinking Access is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.7x, considering almost half the companies in Japan's Software industry have P/S ratios below 2.1x. 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 Access

How Has Access Performed Recently?

The revenue growth achieved at Access over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Access, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Pleasingly, revenue has also lifted 114% 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.

Comparing that to the industry, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Access is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

Despite the recent share price weakness, Access' P/S remains higher than most other companies in the industry. 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.

We've established that Access maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Access that 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.