Jain Irrigation Systems Limited's (NSE:JISLJALEQS) Business And Shares Still Trailing The Industry

Explore Jain Irrigation Systems's Fair Values from the Community and select yours

With a price-to-sales (or "P/S") ratio of 0.7x Jain Irrigation Systems Limited (NSE:JISLJALEQS) may be sending very bullish signals at the moment, given that almost half of all the Machinery companies in India have P/S ratios greater than 2.9x and even P/S higher than 6x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Jain Irrigation Systems

How Has Jain Irrigation Systems Performed Recently?

For instance, Jain Irrigation Systems' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may 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 Jain Irrigation Systems will help you shine a light on its historical performance.

How Is Jain Irrigation Systems' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Jain Irrigation Systems' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 21% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Jain Irrigation Systems is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Jain Irrigation Systems' P/S

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 Jain Irrigation Systems revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Jain Irrigation Systems (1 shouldn't be ignored!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.