Lloyds Engineering Works Limited's (NSE:LLOYDSENGG) 32% Jump Shows Its Popularity With Investors

The Lloyds Engineering Works Limited (NSE:LLOYDSENGG) share price has done very well over the last month, posting an excellent gain of 32%. The annual gain comes to 207% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking Lloyds Engineering Works is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.2x, considering almost half the companies in India's Machinery industry have P/S ratios below 2.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Lloyds Engineering Works

How Has Lloyds Engineering Works Performed Recently?

Recent times have been quite advantageous for Lloyds Engineering Works as its revenue has been rising very briskly. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Lloyds Engineering Works' earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Lloyds Engineering Works?

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

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Lloyds Engineering Works is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Lloyds Engineering Works' P/S?

Shares in Lloyds Engineering Works have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Lloyds Engineering Works revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Lloyds Engineering Works that you need to be mindful of.

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.