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Sumitomo Pharma Co., Ltd.'s (TSE:4506) 30% Share Price Surge Not Quite Adding Up

Simply Wall St · 06/15 00:24

Sumitomo Pharma Co., Ltd. (TSE:4506) shares have continued their recent momentum with a 30% gain in the last month alone. The last month tops off a massive increase of 209% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Sumitomo Pharma's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Japan is also close to 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Sumitomo Pharma

ps-multiple-vs-industry
TSE:4506 Price to Sales Ratio vs Industry June 15th 2025

What Does Sumitomo Pharma's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Sumitomo Pharma has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sumitomo Pharma.

Is There Some Revenue Growth Forecasted For Sumitomo Pharma?

Sumitomo Pharma'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, we see that the company grew revenue by an impressive 27% last year. Still, revenue has fallen 29% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 0.6% each year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 4.0% growth per year, that's a disappointing outcome.

In light of this, it's somewhat alarming that Sumitomo Pharma's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

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The Final Word

Sumitomo Pharma appears to be back in favour with a solid price jump bringing its P/S back in line with 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.

Our check of Sumitomo Pharma's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Before you settle on your opinion, we've discovered 3 warning signs for Sumitomo Pharma (2 can't be ignored!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).