Leader Electronics Corporation's (TSE:6867) P/S Still Appears To Be Reasonable

It's not a stretch to say that Leader Electronics Corporation's (TSE:6867) price-to-sales (or "P/S") ratio of 0.8x 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. 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 Leader Electronics

What Does Leader Electronics' P/S Mean For Shareholders?

Revenue has risen firmly for Leader Electronics recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Leader Electronics' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Leader Electronics?

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

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. Revenue has also lifted 21% in aggregate from three years ago, mostly thanks to the last 12 months of growth. 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 6.6% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Leader Electronics' P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Bottom Line On Leader Electronics' 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.

It appears to us that Leader Electronics maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 4 warning signs for Leader Electronics (3 are a bit unpleasant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Leader Electronics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.