Price-to-Sales Below 1 in Japan: Near-Miss on CAGR, Strong

We screened JPX-listed stocks for low price-to-sales ratios with quality margin and profitability filters, then backtested the portfolio from 2000 to 2025. The strategy returned 7.44% annually, 0.57% below the S&P 500's 8.01%, but with a Sharpe ratio of 0.369 that ranks among the best of all 13 exchanges tested globally. Japan's result is one of the most interesting in the series: the raw CAGR barely misses the benchmark, but the risk-adjusted profile tells a different story.

Contents

1. Method
2. The Screen
3. JPX P/S Screen (SQL)
4. What We Found
5. 25 years. Slightly below SPY on CAGR. Among the best Sharpe ratios globally.
6. Year-by-year returns
7. 2005: +43.7%
8. 2013: +52.19%
9. 2018: -28.04% vs SPY -5.15%
10. 2021: +8.7% vs SPY +31.26%
11. Why the quality filter matters most in Japan
12. Backtest Methodology
13. Limitations
14. Takeaway
15. Part of a Series
16. References
17. Run This Screen Yourself

Method

• Data source: Ceta Research (FMP financial data warehouse)
• Universe: JPX (Japan Exchange Group), market cap > JPY 10B
• Period: 2000-2025 (25 years), invested 2003-2025 (FY data available from 2003 onward)
• Rebalancing: Quarterly (January, April, July, October), equal weight, top 30 by lowest P/S
• Benchmark: S&P 500 Total Return (SPY)
• Cash rule: Hold cash if fewer than 10 stocks qualify

Financial data sourced from FY financial statements with a 45-day lag to prevent look-ahead bias. The portfolio held cash during 14 of 100 quarters, concentrated in 2000-2002 when qualifying FY data wasn't yet available in the pipeline.

The Screen

Signal filters:

Size filter: Market cap > JPY 10B

Selection: Top 30 by lowest P/S among qualifying stocks.

The ROE filter is doing significant work in Japan specifically. Japanese companies are known for conservative capital structures and historically low return on equity. Many trade at low P/S ratios simply because they've sat on cash for years and never pushed for returns. Without the ROE screen, the portfolio fills with exactly those companies. The 10% ROE floor keeps them out.

JPX P/S Screen (SQL)

SELECT
    f.symbol,
    p.companyName,
    p.exchange,
    p.sector,
    ROUND(f.priceToSalesRatioTTM, 3) AS ps_ratio,
    ROUND(f.grossProfitMarginTTM * 100, 1) AS gross_margin_pct,
    ROUND(f.operatingProfitMarginTTM * 100, 1) AS op_margin_pct,
    ROUND(k.returnOnEquityTTM * 100, 1) AS roe_pct,
    ROUND(k.marketCap / 1e9, 2) AS mktcap_b
FROM financial_ratios_ttm f
JOIN key_metrics_ttm k ON f.symbol = k.symbol
JOIN profile p ON f.symbol = p.symbol
WHERE f.priceToSalesRatioTTM > 0
  AND f.priceToSalesRatioTTM < 1
  AND f.grossProfitMarginTTM > 0.20
  AND f.operatingProfitMarginTTM > 0.05
  AND k.returnOnEquityTTM > 0.10
  AND k.marketCap > 10000000000
  AND p.exchange IN ('JPX')
QUALIFY ROW_NUMBER() OVER (PARTITION BY f.symbol ORDER BY f.priceToSalesRatioTTM ASC) = 1
ORDER BY f.priceToSalesRatioTTM ASC
LIMIT 30

Run this query on Ceta Research

What We Found

25 years. Slightly below SPY on CAGR. Among the best Sharpe ratios globally.

The headline number is that Japan barely misses the S&P 500. -0.57% is a small gap, and given Japan's unique market structure, near-zero interest rates, and two "lost decades" in aggregate economic terms, holding pace with the S&P 500 at all is a meaningful result.

The Sharpe of 0.369 is more interesting. Japan's near-zero risk-free rate (around 0.1% for most of this period) means the Sharpe calculation isn't being depressed by a high local RFR. It's a genuine risk-adjusted figure: Japan produced returns that, relative to their volatility, came close to matching what Germany's 0.408 delivered. Both exceed the SPY's 0.354.

The 14 cash periods are front-loaded. The pipeline's FY data for JPX became available from 2003 onward, so 2000-2002 shows as cash. Starting from 2003, the strategy was active for 23 invested years.

Year-by-year returns

2005: +43.7%

Japan's standout year. Prime Minister Koizumi's privatization agenda was accelerating, corporate governance reforms were beginning to take hold, and global demand for Japanese manufacturing was running strong. Companies that had been sitting at depressed P/S ratios were re-rating as their revenue base grew and investors started paying attention to Japan's industrial quality. The screen was well-positioned: quality manufacturers with low valuations that benefited directly from the expansion.

2013: +52.19%

The Abenomics year. BOJ committed to an aggressive quantitative easing program, the yen depreciated sharply, and Japanese exporters saw their competitive position improve overnight. Companies with strong overseas revenue, exactly the type that tends to have P/S below 1 due to global pricing pressure, surged. The portfolio's +52.19% against SPY's +27.77% reflects how concentrated this tailwind was for the kinds of names the screen selects.

2018: -28.04% vs SPY -5.15%

The worst relative year by a wide margin. Tariff escalation fears hit Japanese manufacturers hard. Japan's export-oriented economy is structurally vulnerable to trade policy shifts, and 2018 was when those fears peaked. The screen's bias toward manufacturers and industrials, the same bias that drove 2005 and 2013, became a liability. SPY's losses were cushioned by large-cap US tech; Japan had no equivalent.

2021: +8.7% vs SPY +31.26%

Japan consistently missed the post-COVID tech-driven growth rally. The S&P 500's 2021 gains were heavily concentrated in US technology and growth stocks, none of which had anything to do with the JPX screen. Japanese companies, even the better-run ones, didn't participate in that rally to the same degree. This is a structural feature of the screen rather than a failure: it doesn't hold growth names, and Japan doesn't have them in the same way the US does.

Why the quality filter matters most in Japan

Japan trades at a "Japan discount" for reasons that are structural. Many Japanese companies maintain low payout ratios, hold large cash balances, and have historically been reluctant to optimize capital structure for shareholder returns. Screening for P/S < 1 in Japan without quality filters produces a different portfolio than in other markets: it can fill with companies that are cheap on sales because they're perpetually underearning their assets.

The ROE floor of 10% is the key gate. It excludes the zombie companies and the cash-hoarders who have never converted their asset base into returns. What's left after that filter is a subset of Japanese companies that are actually earning a reasonable return on equity while still trading at low sales multiples. That combination, when it exists, tends to be structural undervaluation rather than fundamental weakness.

Backtest Methodology

Limitations

Below SPY on raw CAGR. The strategy returned 7.44% vs 8.01% for SPY. Over 25 years that's a real gap. The good Sharpe ratio is meaningful, but investors who need to outperform a USD-denominated benchmark on raw return will need to account for this.

Currency exposure. Returns are in JPY. A US investor takes on JPY/USD risk throughout the period, which adds volatility in both directions. Yen depreciation during Abenomics was a tailwind for Japanese equities in local terms but a headwind for USD-denominated investors.

Worse drawdown than benchmark. The -55.27% max drawdown exceeds SPY's -45.53%. The industrial concentration that drives outperformance in good years creates more downside during crises.

Cash 2000-2002. The three-year cash period at the start is a pipeline data artifact. FY qualifying data became available from 2003 onward. This affects the total return comparison against strategies that were invested from 2000.

Concentration in manufacturers and exporters. The P/S screen in Japan consistently loads up on industrial exporters and manufacturing companies. This creates correlation with global trade cycles. When trade sentiment deteriorates (2018), the portfolio is exposed.

Survivorship bias. Exchange membership uses current profiles, not historical. Delistings and corporate reorganizations aren't tracked.

Transaction costs not included. With quarterly rebalancing and roughly 29 stocks, cost drag at standard institutional rates is approximately 0.3-0.5% annually.

Takeaway

Japan produced a near-miss on the S&P 500 (-0.57%) with a Sharpe ratio that beats most developed markets. For a market that went through multiple structural challenges, deflationary pressure, and two extended periods of economic stagnation, that's a more credible result than the CAGR gap alone suggests.

The reason it works comes down to the ROE filter. Japan has hundreds of companies trading below 1x revenue, but the quality gate removes the ones that deserve the discount. What remains is a small subset of Japanese companies that are genuinely earning on their assets while being mispriced relative to their sales. That mispricing tends to persist until macro triggers like Abenomics or Koizumi reforms prompt a rerating.

The tradeoff is export sensitivity. When global trade flows support Japanese manufacturers, the screen does well. When trade policy uncertainty or yen strength creates headwinds, those same companies sell off harder than a diversified benchmark.

Returns are in JPY. For international investors, the JPY/USD component is a material factor in any live implementation.

Part of a Series

This analysis is part of our P/S value screen global exchange comparison. We tested the same four-factor screen across 13 exchanges worldwide: - P/S Value Screen on US Stocks - P/S Value Screen on Indian Stocks - P/S Value Screen on German Stocks - P/S Value Screen on Canadian Stocks - P/S Value Screen on Swedish Stocks - P/S Value Screen on South African Stocks - P/S Value Screen: 13-Exchange Global Comparison

References

• Fisher, K. (1984). Super Stocks. Dow Jones-Irwin.
• Barbee, W., Mukherji, S. & Raines, G. (1996). "Do Sales-Price and Debt-Equity Explain Stock Returns Better than Book-Market and Firm Size?" Financial Analysts Journal, 52(2), 56-60.
• Gray, W. & Vogel, J. (2012). "Analyzing Valuation Measures: A Performance Horse Race over the Past 40 Years." Journal of Portfolio Management, 39(1), 112-121.
• Novy-Marx, R. (2013). "The Other Side of Value: The Gross Profitability Premium." Journal of Financial Economics, 108(1), 1-28.

Run This Screen Yourself

Via web UI: Run the P/S screen on Ceta Research. The query is pre-loaded. Hit "Run" and see what qualifies today.

Via Python:

import requests, time

API_KEY = "your_api_key"  # get one at cetaresearch.com
BASE = "https://tradingstudio.finance/api/v1"

resp = requests.post(f"{BASE}/data-explorer/execute", headers={
    "X-API-Key": API_KEY, "Content-Type": "application/json"
}, json={
    "query": """
        SELECT
            f.symbol,
            p.companyName,
            ROUND(f.priceToSalesRatioTTM, 3) AS ps_ratio,
            ROUND(f.grossProfitMarginTTM * 100, 1) AS gross_margin_pct,
            ROUND(f.operatingProfitMarginTTM * 100, 1) AS op_margin_pct,
            ROUND(k.returnOnEquityTTM * 100, 1) AS roe_pct,
            ROUND(k.marketCap / 1e9, 2) AS mktcap_b
        FROM financial_ratios_ttm f
        JOIN key_metrics_ttm k ON f.symbol = k.symbol
        JOIN profile p ON f.symbol = p.symbol
        WHERE f.priceToSalesRatioTTM > 0
          AND f.priceToSalesRatioTTM < 1
          AND f.grossProfitMarginTTM > 0.20
          AND f.operatingProfitMarginTTM > 0.05
          AND k.returnOnEquityTTM > 0.10
          AND k.marketCap > 10000000000
          AND p.exchange IN ('JPX')
        QUALIFY ROW_NUMBER() OVER (
            PARTITION BY f.symbol ORDER BY f.priceToSalesRatioTTM ASC
        ) = 1
        ORDER BY f.priceToSalesRatioTTM ASC
        LIMIT 30
    """,
    "options": {"format": "json", "limit": 30}
})
task_id = resp.json()["taskId"]

while True:
    result = requests.get(f"{BASE}/tasks/data-query/{task_id}",
                          headers={"X-API-Key": API_KEY}).json()
    if result["status"] in ("completed", "failed"):
        break
    time.sleep(2)

for r in result["result"]["rows"]:
    print(f"{r['symbol']:10s} P/S={r['ps_ratio']:.3f}  GM={r['gross_margin_pct']:.1f}%  ROE={r['roe_pct']:.1f}%")

Get your API key at cetaresearch.com. The full backtest code (Python + DuckDB) is on GitHub.

Data: Ceta Research, FMP financial data warehouse. Universe: JPX. Returns in JPY. Quarterly rebalance, equal weight, 2003-2025 invested.