Toshiba Tec Corporation's (TSE:6588) 29% Share Price Plunge Could Signal Some Risk

Toshiba Tec Corporation (TSE:6588) shares have had a horrible month, losing 29% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 39% in that time.

Even after such a large drop in price, there still wouldn't be many who think Toshiba Tec's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Japan's Tech industry is similar at about 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Toshiba Tec

How Has Toshiba Tec Performed Recently?

With revenue growth that's superior to most other companies of late, Toshiba Tec has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

Want the full picture on analyst estimates for the company? Then our free report on Toshiba Tec will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

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.

Retrospectively, the last year delivered a decent 7.3% gain to the company's revenues. Pleasingly, revenue has also lifted 35% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 0.3% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially lower than the 3.0% per annum growth forecast for the broader industry.

With this information, we find it interesting that Toshiba Tec is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Toshiba Tec's P/S?

Following Toshiba Tec's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Our look at the analysts forecasts of Toshiba Tec's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - Toshiba Tec has 1 warning sign we think you should be aware of.

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.

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