Power Mech Projects Limited's (NSE:POWERMECH) P/S Is Still On The Mark Following 98% Share Price Bounce

Despite an already strong run, Power Mech Projects Limited (NSE:POWERMECH) shares have been powering on, with a gain of 98% in the last thirty days. The last month tops off a massive increase of 219% in the last year.

Since its price has surged higher, you could be forgiven for thinking Power Mech Projects is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.9x, considering almost half the companies in India's Construction industry have P/S ratios below 2.2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Power Mech Projects

What Does Power Mech Projects' P/S Mean For Shareholders?

Recent times haven't been great for Power Mech Projects as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Power Mech Projects' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Power Mech Projects?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Power Mech Projects' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. The strong recent performance means it was also able to grow revenue by 95% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 41% as estimated by the sole analyst watching the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Power Mech Projects' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Power Mech Projects have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Power Mech Projects maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Construction industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Power Mech Projects (1 is a bit concerning!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.