Market Participants Recognise Cochin Shipyard Limited's (NSE:COCHINSHIP) Revenues Pushing Shares 50% Higher

Cochin Shipyard Limited (NSE:COCHINSHIP) shares have continued their recent momentum with a 50% gain in the last month alone. The last 30 days were the cherry on top of the stock's 698% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, given around half the companies in India's Machinery industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider Cochin Shipyard as a stock to avoid entirely with its 16x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Cochin Shipyard

What Does Cochin Shipyard's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Cochin Shipyard has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cochin Shipyard.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a decent 5.6% gain to the company's revenues. The latest three year period has also seen a 23% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 33% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

With this information, we can see why Cochin Shipyard 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.

The Bottom Line On Cochin Shipyard's P/S

Cochin Shipyard's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Cochin Shipyard's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 2 warning signs for Cochin Shipyard (1 is significant!) that we have uncovered.

If you're unsure about the strength of Cochin Shipyard's 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.