Investors Appear Satisfied With Delivery Consulting Inc.'s (TSE:9240) Prospects As Shares Rocket 27%

Delivery Consulting Inc. (TSE:9240) shares have had a really impressive month, gaining 27% after a shaky period beforehand. But the last month did very little to improve the 51% share price decline over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Delivery Consulting'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. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Delivery Consulting

What Does Delivery Consulting's P/S Mean For Shareholders?

The recent revenue growth at Delivery Consulting would have to be considered satisfactory if not spectacular. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

How Is Delivery Consulting's Revenue Growth Trending?

Delivery Consulting'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.7% last year. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 7.1% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Delivery Consulting is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What Does Delivery Consulting's P/S Mean For Investors?

Its shares have lifted substantially and now Delivery Consulting's P/S is back within range of the industry median. 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.

As we've seen, Delivery Consulting's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Delivery Consulting (at least 1 which is potentially serious), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.