Further Upside For The Hi-Tech Gears Limited (NSE:HITECHGEAR) Shares Could Introduce Price Risks After 26% Bounce

Despite an already strong run, The Hi-Tech Gears Limited (NSE:HITECHGEAR) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days were the cherry on top of the stock's 330% gain in the last year, which is nothing short of spectacular.

In spite of the firm bounce in price, there still wouldn't be many who think Hi-Tech Gears' price-to-sales (or "P/S") ratio of 1.9x is worth a mention when the median P/S in India's Auto Components industry is similar at about 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Hi-Tech Gears

What Does Hi-Tech Gears' Recent Performance Look Like?

For instance, Hi-Tech Gears' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is 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 Hi-Tech Gears' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

Hi-Tech Gears' 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.

Retrospectively, the last year delivered a frustrating 5.5% decrease to the company's top line. Still, the latest three year period has seen an excellent 69% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 9.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Hi-Tech Gears is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Hi-Tech Gears' P/S Mean For Investors?

Hi-Tech Gears' stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

To our surprise, Hi-Tech Gears revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Hi-Tech Gears (2 don't sit too well with us!) that you need to be mindful of.

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

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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.