Investors Appear Satisfied With Power & Instrumental (Gujarat) Limited's (NSE:PIGL) Prospects As Shares Rocket 26%

Despite an already strong run, Power & Instrumental (Gujarat) Limited (NSE:PIGL) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days were the cherry on top of the stock's 554% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, when almost half of the companies in India's Construction industry have price-to-sales ratios (or "P/S") below 2x, you may consider Power & Instrumental (Gujarat) as a stock not worth researching with its 5.1x 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 Power & Instrumental (Gujarat)

What Does Power & Instrumental (Gujarat)'s P/S Mean For Shareholders?

Power & Instrumental (Gujarat) has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable 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.

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

Is There Enough Revenue Growth Forecasted For Power & Instrumental (Gujarat)?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Power & Instrumental (Gujarat)'s to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 58% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 14% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Power & Instrumental (Gujarat)'s P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Power & Instrumental (Gujarat)'s P/S Mean For Investors?

Power & Instrumental (Gujarat)'s P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Power & Instrumental (Gujarat) revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Power & Instrumental (Gujarat) has 4 warning signs (and 2 which can't be ignored) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.