Daiwa Motor Transportation Co., Ltd. (TSE:9082) Might Not Be As Mispriced As It Looks After Plunging 45%

The Daiwa Motor Transportation Co., Ltd. (TSE:9082) share price has softened a substantial 45% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 94% in the last year.

Although its price has dipped substantially, there still wouldn't be many who think Daiwa Motor Transportation's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Japan's Transportation industry is similar at about 0.6x. 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.

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See our latest analysis for Daiwa Motor Transportation

What Does Daiwa Motor Transportation's P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Daiwa Motor Transportation, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Daiwa Motor Transportation will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Daiwa Motor Transportation's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.0% last year. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 1.5% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Daiwa Motor Transportation is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Daiwa Motor Transportation's P/S

Daiwa Motor Transportation's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

To our surprise, Daiwa Motor Transportation revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 4 warning signs for Daiwa Motor Transportation (2 are significant!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.