With A 34% Price Drop For Giriraj Civil Developers Limited (NSE:GIRIRAJ) You'll Still Get What You Pay For

Giriraj Civil Developers Limited (NSE:GIRIRAJ) shares have retraced a considerable 34% in the last month, reversing a fair amount of their solid recent performance. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 1,594%.

In spite of the heavy fall in price, when almost half of the companies in India's Construction industry have price-to-sales ratios (or "P/S") below 2.2x, you may still consider Giriraj Civil Developers as a stock not worth researching with its 14.5x 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.

View our latest analysis for Giriraj Civil Developers

How Has Giriraj Civil Developers Performed Recently?

With revenue growth that's exceedingly strong of late, Giriraj Civil Developers has been doing very well. The P/S ratio is probably high because investors think this strong 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 Giriraj Civil Developers will help you shine a light on its historical performance.

How Is Giriraj Civil Developers' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 40%. Pleasingly, revenue has also lifted 263% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 12%, the most recent medium-term revenue trajectory is noticeably more alluring

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

The Key Takeaway

Giriraj Civil Developers' shares may have suffered, but its P/S remains high. 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.

We've established that Giriraj Civil Developers maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with Giriraj Civil Developers (including 3 which shouldn't be ignored).

If these risks are making you reconsider your opinion on Giriraj Civil Developers, 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.