Investors Still Aren't Entirely Convinced By Krishna Defence and Allied Industries Limited's (NSE:KRISHNADEF) Revenues Despite 88% Price Jump

Despite an already strong run, Krishna Defence and Allied Industries Limited (NSE:KRISHNADEF) shares have been powering on, with a gain of 88% in the last thirty days. This latest share price bounce rounds out a remarkable 459% gain over the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Krishna Defence and Allied Industries' P/S ratio of 11.1x, since the median price-to-sales (or "P/S") ratio for the Aerospace & Defense industry in India is also close to 11.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Krishna Defence and Allied Industries

How Has Krishna Defence and Allied Industries Performed Recently?

Recent times have been quite advantageous for Krishna Defence and Allied Industries as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Krishna Defence and Allied Industries will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Krishna Defence and Allied Industries' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Krishna Defence and Allied Industries' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 67% last year. The strong recent performance means it was also able to grow revenue by 204% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 22% shows it's noticeably more attractive.

In light of this, it's curious that Krishna Defence and Allied Industries' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Krishna Defence and Allied Industries' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

To our surprise, Krishna Defence and Allied Industries revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Krishna Defence and Allied Industries you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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