Investors Still Aren't Entirely Convinced By Toho Zinc Co., Ltd.'s (TSE:5707) Revenues Despite 30% Price Jump
Despite an already strong run, Toho Zinc Co., Ltd. (TSE:5707) shares have been powering on, with a gain of 30% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.
Even after such a large jump in price, there still wouldn't be many who think Toho Zinc's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Japan's Metals and Mining industry is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Toho Zinc
How Has Toho Zinc Performed Recently?
Recent times haven't been great for Toho Zinc as its revenue has been falling quicker than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.
Keen to find out how analysts think Toho Zinc's future stacks up against the industry? In that case, our free report is a great place to start.Do Revenue Forecasts Match The P/S Ratio?
Toho Zinc's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. This means it has also seen a slide in revenue over the longer-term as revenue is down 17% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.0%, which is noticeably less attractive.
With this information, we find it interesting that Toho Zinc is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.
What Does Toho Zinc's P/S Mean For Investors?
Toho Zinc's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.
Looking at Toho Zinc's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Toho Zinc (at least 2 which shouldn't be ignored), and understanding them should be part of your investment process.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.