Getting In Cheap On V-cube, Inc. (TSE:3681) Might Be Difficult

There wouldn't be many who think V-cube, Inc.'s (TSE:3681) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Telecom industry in Japan is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for V-cube

How V-cube Has Been Performing

For example, consider that V-cube's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is V-cube's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 6.4% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.9% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly 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 2.0% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that V-cube's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Bottom Line On V-cube's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we've seen, V-cube's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for V-cube (of which 1 is significant!) you should know about.

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