Dilip Buildcon Limited's (NSE:DBL) Shares Bounce 26% But Its Business Still Trails The Industry

Despite an already strong run, Dilip Buildcon Limited (NSE:DBL) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 127% in the last year.

In spite of the firm bounce in price, given about half the companies operating in India's Construction industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Dilip Buildcon as an attractive investment with its 0.7x 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 limited.

See our latest analysis for Dilip Buildcon

What Does Dilip Buildcon's P/S Mean For Shareholders?

Recent times haven't been great for Dilip Buildcon as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Dilip Buildcon would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Revenue has also lifted 18% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 7.6% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 13% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Dilip Buildcon's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Despite Dilip Buildcon's share price climbing recently, its P/S still lags most other companies. 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.

We've established that Dilip Buildcon maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Dilip Buildcon has 2 warning signs we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com