Even With A 26% Surge, Cautious Investors Are Not Rewarding Bharat Heavy Electricals Limited's (NSE:BHEL) Performance Completely

The Bharat Heavy Electricals Limited (NSE:BHEL) share price has done very well over the last month, posting an excellent gain of 26%. The annual gain comes to 234% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Bharat Heavy Electricals' price-to-sales (or "P/S") ratio of 4.5x is worth a mention when the median P/S in India's Electrical industry is similar at about 3.9x. 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 Bharat Heavy Electricals

What Does Bharat Heavy Electricals' Recent Performance Look Like?

Bharat Heavy Electricals could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Bharat Heavy Electricals' future stacks up against the industry? In that case, our free report is a great place to start.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Bharat Heavy Electricals' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 38% in total over the last three years. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 27% per year over the next three years. That's shaping up to be materially higher than the 22% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Bharat Heavy Electricals' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Bharat Heavy Electricals' P/S

Bharat Heavy Electricals appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Bharat Heavy Electricals' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Bharat Heavy Electricals that we have uncovered.

If these risks are making you reconsider your opinion on Bharat Heavy Electricals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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