It's Down 25% But Katsuragawa Electric Co., Ltd. (TSE:6416) Could Be Riskier Than It Looks

The Katsuragawa Electric Co., Ltd. (TSE:6416) share price has fared very poorly over the last month, falling by a substantial 25%. The recent drop has obliterated the annual return, with the share price now down 2.4% over that longer period.

After such a large drop in price, when close to half the companies operating in Japan's Tech industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Katsuragawa Electric as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Katsuragawa Electric

What Does Katsuragawa Electric's Recent Performance Look Like?

The revenue growth achieved at Katsuragawa Electric over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on Katsuragawa Electric will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Katsuragawa Electric's Revenue Growth Trending?

In order to justify its P/S ratio, Katsuragawa Electric would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen a 12% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 3.8% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Katsuragawa Electric is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

The Key Takeaway

Katsuragawa Electric's P/S has taken a dip along with its share price. 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.

The fact that Katsuragawa Electric currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. While recent

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Katsuragawa Electric that you should be aware of.

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