Revenues Tell The Story For Raymond Limited (NSE:RAYMOND) As Its Stock Soars 26%

Raymond Limited (NSE:RAYMOND) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 63% share price drop in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Raymond's P/S ratio of 2.5x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in India is also close to 2.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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What Does Raymond's P/S Mean For Shareholders?

Recent times have been advantageous for Raymond as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Is There Some Revenue Growth Forecasted For Raymond?

Raymond's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 94%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 68% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the only analyst watching the company. That's shaping up to be similar to the 13% each year growth forecast for the broader industry.

With this information, we can see why Raymond is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Raymond's P/S Mean For Investors?

Raymond's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

We've seen that Raymond maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you take the next step, you should know about the 3 warning signs for Raymond (1 is concerning!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.