Jyoti CNC Automation Limited (NSE:JYOTICNC) Looks Just Right With A 26% Price Jump

Jyoti CNC Automation Limited (NSE:JYOTICNC) shares have continued their recent momentum with a 26% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, given around half the companies in India's Machinery industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Jyoti CNC Automation as a stock to avoid entirely with its 17.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jyoti CNC Automation

What Does Jyoti CNC Automation's P/S Mean For Shareholders?

Jyoti CNC Automation certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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 Jyoti CNC Automation's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Jyoti CNC Automation?

The only time you'd be truly comfortable seeing a P/S as steep as Jyoti CNC Automation's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 44% last year. The strong recent performance means it was also able to grow revenue by 131% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 12%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Jyoti CNC Automation's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Shares in Jyoti CNC Automation have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Jyoti CNC Automation maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Jyoti CNC Automation, and understanding should be part of your investment process.

If you're unsure about the strength of Jyoti CNC Automation'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.