Why We're Not Concerned Yet About e-LogiT co.,ltd.'s (TSE:9327) 25% Share Price Plunge

e-LogiT co.,ltd. (TSE:9327) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 5.3% over that longer period.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about e-LogiTltd's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Logistics industry in Japan is also close to 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for e-LogiTltd

How Has e-LogiTltd Performed Recently?

For example, consider that e-LogiTltd's financial performance has been pretty ordinary lately as revenue growth is non-existent. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on e-LogiTltd will help you shine a light on its historical performance.

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

e-LogiTltd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Regardless, revenue has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 5.4% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why e-LogiTltd is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Final Word

Following e-LogiTltd's share price tumble, its P/S is just clinging on to the industry median 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 e-LogiTltd 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. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider and we've discovered 6 warning signs for e-LogiTltd (4 are a bit concerning!) that you should be aware of before investing here.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.