More Unpleasant Surprises Could Be In Store For IL&FS Engineering and Construction Company Limited's (NSE:IL&FSENGG) Shares After Tumbling 33%

The IL&FS Engineering and Construction Company Limited (NSE:IL&FSENGG) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 146%.

In spite of the heavy fall in price, there still wouldn't be many who think IL&FS Engineering and Construction's price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in India's Construction industry is similar at about 1.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for IL&FS Engineering and Construction

What Does IL&FS Engineering and Construction's Recent Performance Look Like?

Recent times have been quite advantageous for IL&FS Engineering and Construction as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on IL&FS Engineering and Construction will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For IL&FS Engineering and Construction?

IL&FS Engineering and Construction's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 28% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that IL&FS Engineering and Construction is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does IL&FS Engineering and Construction's P/S Mean For Investors?

Following IL&FS Engineering and Construction's share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that IL&FS Engineering and Construction currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Plus, you should also learn about these 2 warning signs we've spotted with IL&FS Engineering and Construction (including 1 which doesn't sit too well with us).

If you're unsure about the strength of IL&FS Engineering and Construction'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.