Toshiba Tec Corporation (TSE:6588) Shares May Have Slumped 28% But Getting In Cheap Is Still Unlikely

Unfortunately for some shareholders, the Toshiba Tec Corporation (TSE:6588) share price has dived 28% 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 31% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Toshiba Tec's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Tech industry in Japan is also close to 0.6x. 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 Toshiba Tec

What Does Toshiba Tec's Recent Performance Look Like?

There hasn't been much to differentiate Toshiba Tec's and the industry's revenue growth lately. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Toshiba Tec's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.2% last year. Pleasingly, revenue has also lifted 31% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 0.3% per annum during the coming three years according to the two analysts following the company. Meanwhile, the broader industry is forecast to expand by 2.7% per year, which paints a poor picture.

In light of this, it's somewhat alarming that Toshiba Tec's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Final Word

With its share price dropping off a cliff, the P/S for Toshiba Tec looks to be in line with the rest of the Tech 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.

Our check of Toshiba Tec's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Plus, you should also learn about these 3 warning signs we've spotted with Toshiba Tec (including 1 which shouldn't be ignored).

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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.