There's Reason For Concern Over AXISCADES Technologies Limited's (NSE:AXISCADES) Massive 25% Price Jump

Despite an already strong run, AXISCADES Technologies Limited (NSE:AXISCADES) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 189% in the last year.

Following the firm bounce in price, given around half the companies in India's Construction industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider AXISCADES Technologies as a stock to avoid entirely with its 6.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for AXISCADES Technologies

What Does AXISCADES Technologies' P/S Mean For Shareholders?

Revenue has risen firmly for AXISCADES Technologies recently, which is pleasing to see. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is AXISCADES Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, AXISCADES Technologies would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.3% gain to the company's revenues. The latest three year period has also seen an excellent 55% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's curious that AXISCADES Technologies' P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From AXISCADES Technologies' P/S?

The strong share price surge has lead to AXISCADES Technologies' P/S soaring as well. 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.

Our examination of AXISCADES Technologies revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Having said that, be aware AXISCADES Technologies is showing 1 warning sign in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.