There's Reason For Concern Over Inox Wind Energy Limited's (NSE:IWEL) Massive 27% Price Jump

Despite an already strong run, Inox Wind Energy Limited (NSE:IWEL) shares have been powering on, with a gain of 27% in the last thirty days. This latest share price bounce rounds out a remarkable 601% gain over the last twelve months.

After such a large jump in price, when almost half of the companies in India's Electrical industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider Inox Wind Energy as a stock not worth researching with its 5.7x 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 so lofty.

View our latest analysis for Inox Wind Energy

What Does Inox Wind Energy's Recent Performance Look Like?

Inox Wind Energy certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Inox Wind Energy's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Inox Wind Energy?

Inox Wind Energy's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 105% last year. The strong recent performance means it was also able to grow revenue by 113% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 32% shows it's noticeably less attractive.

With this information, we find it concerning that Inox Wind Energy is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Inox Wind Energy have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Inox Wind Energy revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with Inox Wind Energy (including 1 which shouldn't be ignored).

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.