Optimistic Investors Push K.R.S. Corporation (TSE:9369) Shares Up 27% But Growth Is Lacking

K.R.S. Corporation (TSE:9369) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 115% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think K.R.S' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Japan's Logistics industry is similar at about 0.4x. 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 K.R.S

How Has K.R.S Performed Recently?

Recent times have been pleasing for K.R.S as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Keen to find out how analysts think K.R.S' future stacks up against the industry? In that case, our free report is a great place to start.

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

The only time you'd be comfortable seeing a P/S like K.R.S' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 4.4% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 9.8% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 3.0% as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 6.7% growth forecast for the broader industry.

With this information, we find it interesting that K.R.S is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does K.R.S' P/S Mean For Investors?

K.R.S appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that K.R.S' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware K.R.S is showing 2 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.