SoftBank Group Corp.'s (TSE:9984) 31% Jump Shows Its Popularity With Investors

Explore SoftBank Group's Fair Values from the Community and select yours

Despite an already strong run, SoftBank Group Corp. (TSE:9984) shares have been powering on, with a gain of 31% in the last thirty days. The last 30 days bring the annual gain to a very sharp 83%.

In spite of the firm bounce in price, there still wouldn't be many who think SoftBank Group's price-to-sales (or "P/S") ratio of 2.7x is worth a mention when the median P/S in Japan's Wireless Telecom industry is similar at about 2.5x. 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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View our latest analysis for SoftBank Group

What Does SoftBank Group's P/S Mean For Shareholders?

SoftBank Group's revenue growth of late has been pretty similar to most other companies. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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

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

In order to justify its P/S ratio, SoftBank Group 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 6.7% last year. Revenue has also lifted 17% 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 actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 5.3% per annum over the next three years. With the industry predicted to deliver 6.0% growth per annum, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that SoftBank Group's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On SoftBank Group's P/S

Its shares have lifted substantially and now SoftBank Group's P/S is back within range of the industry median. 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 SoftBank Group's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

And what about other risks? Every company has them, and we've spotted 4 warning signs for SoftBank Group (of which 2 make us uncomfortable!) 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.