Japan Airport Terminal Co., Ltd.'s (TSE:9706) Shares May Have Run Too Fast Too Soon

Japan Airport Terminal Co., Ltd.'s (TSE:9706) price-to-sales (or "P/S") ratio of 2.3x may not look like an appealing investment opportunity when you consider close to half the companies in the Infrastructure industry in Japan have P/S ratios below 0.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Japan Airport Terminal

How Has Japan Airport Terminal Performed Recently?

Japan Airport Terminal certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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

In order to justify its P/S ratio, Japan Airport Terminal would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 92% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 11% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 13% each year, which is not materially different.

With this in consideration, we find it intriguing that Japan Airport Terminal's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Japan Airport Terminal's P/S Mean For Investors?

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.

Given Japan Airport Terminal's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Japan Airport Terminal that you should be aware of.

If you're unsure about the strength of Japan Airport Terminal's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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