The Price Is Right For Terra Drone Corporation (TSE:278A) Even After Diving 35%
Unfortunately for some shareholders, the Terra Drone Corporation (TSE:278A) share price has dived 35% in the last thirty days, prolonging recent pain. The last month has meant the stock is now only up 6.6% during the last year.
In spite of the heavy fall in price, when almost half of the companies in Japan's Commercial Services industry have price-to-sales ratios (or "P/S") below 0.6x, you may still consider Terra Drone as a stock not worth researching with its 4.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Terra Drone
What Does Terra Drone's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Terra Drone has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Terra Drone will help you uncover what's on the horizon.Is There Enough Revenue Growth Forecasted For Terra Drone?
The only time you'd be truly comfortable seeing a P/S as steep as Terra Drone's is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. Pleasingly, revenue has also lifted 130% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 33% over the next year. With the industry only predicted to deliver 5.1%, the company is positioned for a stronger revenue result.
With this in mind, it's not hard to understand why Terra Drone's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Terra Drone's P/S
Even after such a strong price drop, Terra Drone's P/S still exceeds the industry median significantly. 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 Terra Drone maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Commercial Services 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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Terra Drone (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.
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.