Some Confidence Is Lacking In Techfirm Holdings Inc. (TSE:3625) As Shares Slide 26%

Simply Wall St · 04/07 23:03

Techfirm Holdings Inc. (TSE:3625) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 5.7% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Techfirm Holdings' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Japan's IT industry is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Techfirm Holdings

ps-multiple-vs-industry
TSE:3625 Price to Sales Ratio vs Industry April 7th 2025

What Does Techfirm Holdings' Recent Performance Look Like?

The revenue growth achieved at Techfirm Holdings over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Techfirm Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Techfirm Holdings' 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.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 7.2% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Techfirm Holdings is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Techfirm Holdings' P/S Mean For Investors?

Techfirm Holdings' plummeting stock price has brought its P/S back to a similar region as 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.

We've established that Techfirm Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Techfirm Holdings (of which 1 is concerning!) you should know about.

If you're unsure about the strength of Techfirm Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.