Slammed 37% INCLUSIVE Inc. (TSE:7078) Screens Well Here But There Might Be A Catch

The INCLUSIVE Inc. (TSE:7078) share price has fared very poorly over the last month, falling by a substantial 37%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about INCLUSIVE's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the IT industry in Japan is also close to 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for INCLUSIVE

How INCLUSIVE Has Been Performing

Revenue has risen firmly for INCLUSIVE recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on INCLUSIVE's earnings, revenue and cash flow.

How Is INCLUSIVE's Revenue Growth Trending?

INCLUSIVE's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The latest three year period has also seen an excellent 289% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 5.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

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.

The Final Word

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. 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 didn't quite envision INCLUSIVE's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with INCLUSIVE (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com