Delivery Consulting Inc.'s (TSE:9240) Shares Leap 32% Yet They're Still Not Telling The Full Story

Despite an already strong run, Delivery Consulting Inc. (TSE:9240) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 46%.

Although its price has surged higher, there still wouldn't be many who think Delivery Consulting's price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in Japan's IT industry is similar at about 1.1x. 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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Check out our latest analysis for Delivery Consulting

How Has Delivery Consulting Performed Recently?

We'd have to say that with no tangible growth over the last year, Delivery Consulting's revenue has been unimpressive. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. Those who are bullish on Delivery Consulting will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Delivery Consulting's earnings, revenue and cash flow.

How Is Delivery Consulting's Revenue Growth Trending?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 29% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

This is in contrast to the rest of the industry, which is expected to grow by 6.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Delivery Consulting's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Delivery Consulting's P/S?

Delivery Consulting appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, Delivery Consulting revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Delivery Consulting (at least 3 which are a bit unpleasant), and understanding these should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.