What You Can Learn From Liberta Co.,Ltd.'s (TSE:4935) P/S

Liberta Co.,Ltd.'s (TSE:4935) price-to-sales (or "P/S") ratio of 1.1x may not look like an appealing investment opportunity when you consider close to half the companies in the Retail Distributors industry in Japan have P/S ratios below 0.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for LibertaLtd

How Has LibertaLtd Performed Recently?

LibertaLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for LibertaLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is LibertaLtd's Revenue Growth Trending?

In order to justify its P/S ratio, LibertaLtd would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. This was backed up an excellent period prior to see revenue up by 58% in total over the last three years. 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 4.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why LibertaLtd 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 LibertaLtd's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that LibertaLtd 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. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

And what about other risks? Every company has them, and we've spotted 4 warning signs for LibertaLtd (of which 3 are significant!) you should know about.

If these risks are making you reconsider your opinion on LibertaLtd, 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.