Hitachi Energy India Limited (NSE:POWERINDIA) Stocks Shoot Up 27% But Its P/S Still Looks Reasonable

Hitachi Energy India Limited (NSE:POWERINDIA) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

Since its price has surged higher, when almost half of the companies in India's Electrical industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider Hitachi Energy India as a stock not worth researching with its 10.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

We check all companies for important risks. See what we found for Hitachi Energy India in our free report.

Check out our latest analysis for Hitachi Energy India

How Hitachi Energy India Has Been Performing

Recent times haven't been great for Hitachi Energy India as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Hitachi Energy India will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Hitachi Energy India?

In order to justify its P/S ratio, Hitachi Energy India would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. The latest three year period has also seen an excellent 64% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 30%, which is noticeably less attractive.

With this information, we can see why Hitachi Energy India is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Hitachi Energy India's P/S?

Hitachi Energy India's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Hitachi Energy India's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Hitachi Energy India with six simple checks on some of these key factors.

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.