There's No Escaping Jain Irrigation Systems Limited's (NSE:JISLJALEQS) Muted Revenues Despite A 28% Share Price Rise

Jain Irrigation Systems Limited (NSE:JISLJALEQS) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, Jain Irrigation Systems may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Machinery industry in India have P/S ratios greater than 2.8x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jain Irrigation Systems

What Does Jain Irrigation Systems' Recent Performance Look Like?

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. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Jain Irrigation Systems' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.7%. The last three years don't look nice either as the company has shrunk revenue by 12% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 16% shows it's an unpleasant look.

In light of this, it's understandable that Jain Irrigation Systems' P/S would sit below the majority of other companies. 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.

What Does Jain Irrigation Systems' P/S Mean For Investors?

The latest share price surge wasn't enough to lift Jain Irrigation Systems' P/S close to the industry median. 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.

Our examination of Jain Irrigation Systems confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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.

Having said that, be aware Jain Irrigation Systems is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Jain Irrigation Systems' 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.