Investors Give INCLUSIVE Inc. (TSE:7078) Shares A 26% Hiding

Unfortunately for some shareholders, the INCLUSIVE Inc. (TSE:7078) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 48% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that INCLUSIVE's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the IT industry in Japan, where the median P/S ratio is around 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for INCLUSIVE

How Has INCLUSIVE Performed Recently?

For instance, INCLUSIVE's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. Even so, admirably revenue has lifted 233% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 7.2% shows it's noticeably more attractive.

In light of this, it's curious that INCLUSIVE's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does INCLUSIVE's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for INCLUSIVE looks to be in line with the rest of the IT industry. 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.

We've established that INCLUSIVE currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for INCLUSIVE (of which 2 make us uncomfortable!) you should know about.

If you're unsure about the strength of INCLUSIVE's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.