Bharat Dynamics Limited's (NSE:BDL) 29% Jump Shows Its Popularity With Investors

Bharat Dynamics Limited (NSE:BDL) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 81%.

Since its price has surged higher, given around half the companies in India's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 9.7x, you may consider Bharat Dynamics as a stock to avoid entirely with its 21.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Bharat Dynamics

What Does Bharat Dynamics' Recent Performance Look Like?

Recent times haven't been great for Bharat Dynamics as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Bharat Dynamics will help you uncover what's on the horizon.

How Is Bharat Dynamics' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Bharat Dynamics' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 1.6% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 40% per year during the coming three years according to the five analysts following the company. With the industry only predicted to deliver 19% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Bharat Dynamics is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Bharat Dynamics' P/S Mean For Investors?

Bharat Dynamics' P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Bharat Dynamics shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Bharat Dynamics that you need to take into consideration.

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.