Chubu Electric Power Company, Incorporated's (TSE:9502) Business Is Yet to Catch Up With Its Share Price

It's not a stretch to say that Chubu Electric Power Company, Incorporated's (TSE:9502) price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" for companies in the Electric Utilities industry in Japan, where the median P/S ratio is around 0.3x. 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 Chubu Electric Power Company

What Does Chubu Electric Power Company's P/S Mean For Shareholders?

Chubu Electric Power Company has been struggling lately as its revenue has declined faster than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Chubu Electric Power Company will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Chubu Electric Power Company?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Chubu Electric Power Company's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.4%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 23% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 1.0% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 0.1% per annum, which paints a poor picture.

With this information, we find it concerning that Chubu Electric Power Company is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What We Can Learn From Chubu Electric Power Company's 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 that Chubu Electric Power Company currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Before you settle on your opinion, we've discovered 3 warning signs for Chubu Electric Power Company (2 shouldn't be ignored!) that you should be aware of.

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

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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.

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