Kriti Industries (India) Limited (NSE:KRITI) Stock Catapults 31% Though Its Price And Business Still Lag The Industry

Kriti Industries (India) Limited (NSE:KRITI) shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 71%.

Even after such a large jump in price, it would still be understandable if you think Kriti Industries (India) is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.9x, considering almost half the companies in India's Building industry have P/S ratios above 1.6x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Kriti Industries (India)

What Does Kriti Industries (India)'s P/S Mean For Shareholders?

The revenue growth achieved at Kriti Industries (India) over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Kriti Industries (India) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kriti Industries (India) will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Kriti Industries (India)'s to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The latest three year period has also seen an excellent 60% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 19% shows it's noticeably less attractive.

With this information, we can see why Kriti Industries (India) is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Kriti Industries (India)'s stock price has surged recently, but its but its P/S still remains modest. 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.

In line with expectations, Kriti Industries (India) maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you take the next step, you should know about the 3 warning signs for Kriti Industries (India) (1 is a bit unpleasant!) that we have uncovered.

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.