Revenues Not Telling The Story For Shivam Autotech Limited (NSE:SHIVAMAUTO) After Shares Rise 44%

Shivam Autotech Limited (NSE:SHIVAMAUTO) shareholders have had their patience rewarded with a 44% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shivam Autotech's P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in India is also close to 1.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Shivam Autotech

What Does Shivam Autotech's Recent Performance Look Like?

Shivam Autotech has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shivam Autotech will help you shine a light on its historical performance.

How Is Shivam Autotech's Revenue Growth Trending?

In order to justify its P/S ratio, Shivam Autotech would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 3.3% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Shivam Autotech's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Shivam Autotech's P/S?

Its shares have lifted substantially and now Shivam Autotech's P/S is back within range of the industry median. 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.

We find it unexpected that Shivam Autotech trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware Shivam Autotech is showing 3 warning signs in our investment analysis, and 2 of those are significant.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.