Why Investors Shouldn't Be Surprised By Kura Sushi USA, Inc.'s (NASDAQ:KRUS) 27% Share Price Surge

Kura Sushi USA, Inc. (NASDAQ:KRUS) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 67%.

Following the firm bounce in price, you could be forgiven for thinking Kura Sushi USA is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.7x, considering almost half the companies in the United States' Hospitality industry have P/S ratios below 1.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Kura Sushi USA

What Does Kura Sushi USA's P/S Mean For Shareholders?

Recent revenue growth for Kura Sushi USA has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Kura Sushi USA's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Kura Sushi USA's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the seven analysts watching the company. With the industry only predicted to deliver 13% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Kura Sushi USA's P/S is high relative to its industry peers. 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

The strong share price surge has lead to Kura Sushi USA's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Kura Sushi USA (of which 1 can't be ignored!) you should know about.

If you're unsure about the strength of Kura Sushi USA's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.