Investors Appear Satisfied With Tamai Steamship Co., Ltd.'s (TSE:9127) Prospects As Shares Rocket 27%

Tamai Steamship Co., Ltd. (TSE:9127) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 5.8% isn't as attractive.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Tamai Steamship's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Shipping industry in Japan is also close to 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Our free stock report includes 3 warning signs investors should be aware of before investing in Tamai Steamship. Read for free now.

View our latest analysis for Tamai Steamship

How Tamai Steamship Has Been Performing

As an illustration, revenue has deteriorated at Tamai Steamship over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Tamai Steamship's earnings, revenue and cash flow.

How Is Tamai Steamship's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.6%. This means it has also seen a slide in revenue over the longer-term as revenue is down 10% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

For that matter, there's little to separate that medium-term revenue trajectory on an annualised basis against the broader industry's one-year forecast for a contraction of 2.5% either.

With this information, it might not be too hard to see why Tamai Steamship is trading at a fairly similar P/S in comparison. Nonetheless, there's no guarantee the P/S has found a floor yet with recent revenue going backwards, despite the industry heading down in unison. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Tamai Steamship's P/S?

Tamai Steamship's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Tamai Steamship's P/S is justifiably on par with the rest of the industry off the back of its recent three-year revenue being in line with the wider industry forecast too. Right now shareholders are comfortable with the P/S as they seem confident future revenue won't throw up any further unpleasant surprises. However, we're slightly cautious about the company's ability to stay its recent medium-term course and resist further pain to its business from the broader industry turmoil. For now though, it's hard to see the share price moving strongly in either direction unless there's a material change to operating conditions.

Before you settle on your opinion, we've discovered 3 warning signs for Tamai Steamship that you should be aware of.

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.