Kura Sushi USA, Inc. (NASDAQ:KRUS) Not Flying Under The Radar

Kura Sushi USA, Inc.'s (NASDAQ:KRUS) price-to-sales (or "P/S") ratio of 6x may look like a poor investment opportunity when you consider close to half the companies in the Hospitality industry in the United States have P/S ratios below 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Kura Sushi USA

How Kura Sushi USA Has Been Performing

Kura Sushi USA could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Kura Sushi USA?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Kura Sushi USA's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 30%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 31% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

In light of this, it's understandable that Kura Sushi USA's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Kura Sushi USA's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Kura Sushi USA maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Hospitality industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Kura Sushi USA you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on Kura Sushi USA, 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.