The Kansai Electric Power Company, Incorporated's (TSE:9503) P/S Is On The Mark

With a median price-to-sales (or "P/S") ratio of close to 0.3x in the Electric Utilities industry in Japan, you could be forgiven for feeling indifferent about The Kansai Electric Power Company, Incorporated's (TSE:9503) P/S ratio of 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.

View our latest analysis for Kansai Electric Power Company

What Does Kansai Electric Power Company's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Kansai Electric Power Company has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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.

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

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

In order to justify its P/S ratio, Kansai Electric Power Company would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 2.3% per annum as estimated by the four analysts watching the company. Although, this is simply shaping up to be in line with the broader industry, which is also set to decline 2.8% per year.

In light of this, it's understandable that Kansai Electric Power Company's P/S sits in line with the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

What Does Kansai Electric Power Company's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, we see that Kansai Electric Power Company maintains its moderate P/S thanks to a revenue outlook that's pretty much level with the wider industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to justify a high or low P/S ratio. Although, we are somewhat concerned whether the company can maintain this level of performance under these tough industry conditions. For now though, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Kansai Electric Power Company (1 is a bit unpleasant!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Kansai Electric Power Company, 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.