The Market Lifts Ramky Infrastructure Limited (NSE:RAMKY) Shares 30% But It Can Do More

Those holding Ramky Infrastructure Limited (NSE:RAMKY) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 86% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Ramky Infrastructure's P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Construction industry in India is about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Ramky Infrastructure

How Ramky Infrastructure Has Been Performing

The revenue growth achieved at Ramky Infrastructure over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Ramky Infrastructure's earnings, revenue and cash flow.

How Is Ramky Infrastructure's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Ramky Infrastructure's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. The strong recent performance means it was also able to grow revenue by 95% in total over the last three years. 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 12% shows it's noticeably more attractive.

In light of this, it's curious that Ramky Infrastructure's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Ramky Infrastructure appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, Ramky Infrastructure revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Ramky Infrastructure (including 1 which is concerning).

If you're unsure about the strength of Ramky Infrastructure's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.