Inox Wind Limited (NSE:INOXWIND) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

Inox Wind Limited (NSE:INOXWIND) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last month tops off a massive increase of 256% in the last year.

Following the firm bounce in price, Inox Wind may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 13.7x, since almost half of all companies in the Electrical industry in India have P/S ratios under 3.9x and even P/S lower than 1.5x 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 lofty.

View our latest analysis for Inox Wind

What Does Inox Wind's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Inox Wind has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is Inox Wind's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 137% last year. The strong recent performance means it was also able to grow revenue by 145% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 76% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 22% each year, which is noticeably less attractive.

In light of this, it's understandable that Inox Wind's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Inox Wind's P/S

Inox Wind'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 Inox Wind'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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Inox Wind you should know about.

If these risks are making you reconsider your opinion on Inox Wind, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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