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Investors Appear Satisfied With GFA Co., Ltd.'s (TSE:8783) Prospects As Shares Rocket 26%

Simply Wall St · 05/16/2025 21:28

Those holding GFA Co., Ltd. (TSE:8783) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 10.0% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in Japan's Hospitality industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider GFA as a stock not worth researching with its 3.1x 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.

We've discovered 4 warning signs about GFA. View them for free.

See our latest analysis for GFA

ps-multiple-vs-industry
TSE:8783 Price to Sales Ratio vs Industry May 16th 2025

What Does GFA's Recent Performance Look Like?

As an illustration, revenue has deteriorated at GFA over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 GFA's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For GFA?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.5%. Still, the latest three year period has seen an excellent 77% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is only predicted to deliver 8.0% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that GFA's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From GFA's P/S?

Shares in GFA have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that GFA can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware GFA is showing 4 warning signs in our investment analysis, and 3 of those are a bit unpleasant.

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).