Revenues Not Telling The Story For Marine Electricals (India) Limited (NSE:MARINE) After Shares Rise 26%

Marine Electricals (India) Limited (NSE:MARINE) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days were the cherry on top of the stock's 376% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, Marine Electricals (India) may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 6.1x, since almost half of all companies in the Electrical industry in India have P/S ratios under 3.8x and even P/S lower than 1.4x are not unusual. 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 Marine Electricals (India)

How Marine Electricals (India) Has Been Performing

Recent times have been quite advantageous for Marine Electricals (India) 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Marine Electricals (India)'s earnings, revenue and cash flow.

How Is Marine Electricals (India)'s Revenue Growth Trending?

Marine Electricals (India)'s P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 40% last year. Pleasingly, revenue has also lifted 148% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 34% shows it's about the same on an annualised basis.

With this information, we find it interesting that Marine Electricals (India) is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Marine Electricals (India)'s P/S Mean For Investors?

Marine Electricals (India)'s P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our examination of Marine Electricals (India) revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You should always think about risks. Case in point, we've spotted 2 warning signs for Marine Electricals (India) you should be aware of.

If these risks are making you reconsider your opinion on Marine Electricals (India), explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.