After Leaping 34% Hokkaido Electric Power Company, Incorporated (TSE:9509) Shares Are Not Flying Under The Radar

Hokkaido Electric Power Company, Incorporated (TSE:9509) shares have continued their recent momentum with a 34% gain in the last month alone. The annual gain comes to 119% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Hokkaido Electric Power Company's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Japan's Electric Utilities industry is similar at about 0.3x. 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 Hokkaido Electric Power Company

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

Hokkaido Electric Power Company certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Hokkaido Electric Power Company's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Hokkaido Electric Power Company's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 30% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company are not great, suggesting revenue should decline by 1.9% per annum over the next three years. Although, this is simply shaping up to be in line with the broader industry, which is also set to decline 2.6% per year.

With this in consideration, it's clear to see why Hokkaido Electric Power Company's P/S stacks up closely with its industry peers. 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.

The Final Word

Hokkaido Electric Power Company's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our findings align with our suspicions - a closer look at Hokkaido Electric Power Company's analyst forecasts shows that the company's similarly unstable outlook compared to the industry is keeping its price-to-sales ratio in line with the industry's average. Right now shareholders are comfortable with the P/S as they are confident future revenue won't throw up any further unpleasant surprises. However, we're slightly cautious about the company's ability to resist further pain to its business from the broader industry turmoil. It seems that unless there's a drastic change, it's hard to imagine that the share price will deviate much from current levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Hokkaido Electric Power Company you should be aware of, and 2 of them shouldn't be ignored.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.