What You Can Learn From Link-U Group Inc.'s (TSE:4446) P/S After Its 37% Share Price Crash
Link-U Group Inc. (TSE:4446) shares have retraced a considerable 37% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 148%.
In spite of the heavy fall in price, when almost half of the companies in Japan's Interactive Media and Services industry have price-to-sales ratios (or "P/S") below 1.6x, you may still consider Link-U Group as a stock probably not worth researching with its 3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Link-U Group
What Does Link-U Group's Recent Performance Look Like?
The revenue growth achieved at Link-U Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Link-U Group's earnings, revenue and cash flow.Is There Enough Revenue Growth Forecasted For Link-U Group?
Link-U Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 82% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
This is in contrast to the rest of the industry, which is expected to grow by 9.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we can see why Link-U Group is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.
What Does Link-U Group's P/S Mean For Investors?
Despite the recent share price weakness, Link-U Group's P/S remains higher than most other companies in the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that Link-U Group maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 3 warning signs for Link-U Group (1 is significant!) that you should be aware of.
If these risks are making you reconsider your opinion on Link-U Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.