Alps Alpine Co., Ltd.'s (TSE:6770) Business Is Trailing The Industry But Its Shares Aren't

It's not a stretch to say that Alps Alpine Co., Ltd.'s (TSE:6770) price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" for companies in the Electronic industry in Japan, where the median P/S ratio is around 0.7x. 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.

See our latest analysis for Alps Alpine

How Has Alps Alpine Performed Recently?

With revenue growth that's superior to most other companies of late, Alps Alpine has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Alps Alpine.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Alps Alpine would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.3% last year. Pleasingly, revenue has also lifted 36% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 1.0% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 8.1% per year, which is noticeably more attractive.

In light of this, it's curious that Alps Alpine's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. 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 Alps Alpine's P/S?

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.

Our look at the analysts forecasts of Alps Alpine's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Alps Alpine with six simple checks on some of these key factors.

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).

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

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.