Stock Analysis

Japfa Ltd.'s (SGX:UD2) Shares Bounce 25% But Its Business Still Trails The Industry

SGX:UD2
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Japfa Ltd. (SGX:UD2) shareholders have had their patience rewarded with a 25% share price jump in the last month. The annual gain comes to 109% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, given about half the companies operating in Singapore's Food industry have price-to-sales ratios (or "P/S") above 0.7x, you may still consider Japfa as an attractive investment with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Japfa

ps-multiple-vs-industry
SGX:UD2 Price to Sales Ratio vs Industry December 31st 2024

What Does Japfa's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Japfa has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. 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 out of favour.

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

How Is Japfa's Revenue Growth Trending?

In order to justify its P/S ratio, Japfa would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 0.3% during the coming year according to the two analysts following the company. With the industry predicted to deliver 6.1% growth, that's a disappointing outcome.

With this information, we are not surprised that Japfa is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Japfa's P/S

Japfa's stock price has surged recently, but its but its P/S still remains modest. 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.

It's clear to see that Japfa maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Japfa's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Japfa that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.