Godha Cabcon & Insulation Limited (NSE:GODHA) Not Doing Enough For Some Investors As Its Shares Slump 28%

Godha Cabcon & Insulation Limited (NSE:GODHA) shares have had a horrible month, losing 28% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 20%.

After such a large drop in price, Godha Cabcon & Insulation may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Electrical industry in India have P/S ratios greater than 2.7x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Godha Cabcon & Insulation

What Does Godha Cabcon & Insulation's Recent Performance Look Like?

Recent times have been quite advantageous for Godha Cabcon & Insulation as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Godha Cabcon & Insulation will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Godha Cabcon & Insulation, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Godha Cabcon & Insulation?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Godha Cabcon & Insulation's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Pleasingly, revenue has also lifted 105% in aggregate from three years ago, thanks to the last 12 months of explosive growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 32% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Godha Cabcon & Insulation is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Godha Cabcon & Insulation's P/S

Godha Cabcon & Insulation's P/S looks about as weak as its stock price lately. 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.

As we suspected, our examination of Godha Cabcon & Insulation revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Godha Cabcon & Insulation you should know about.

If you're unsure about the strength of Godha Cabcon & Insulation'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.