After Leaping 39% Shaily Engineering Plastics Limited (NSE:SHAILY) Shares Are Not Flying Under The Radar

Shaily Engineering Plastics Limited (NSE:SHAILY) shares have had a really impressive month, gaining 39% after a shaky period beforehand. The last month tops off a massive increase of 295% in the last year.

Since its price has surged higher, given around half the companies in India's Machinery industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Shaily Engineering Plastics as a stock to avoid entirely with its 8.5x 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.

See our latest analysis for Shaily Engineering Plastics

How Has Shaily Engineering Plastics Performed Recently?

With revenue growth that's superior to most other companies of late, Shaily Engineering Plastics has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Shaily Engineering Plastics will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Shaily Engineering Plastics?

Shaily Engineering Plastics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. Pleasingly, revenue has also lifted 46% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 25% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

In light of this, it's understandable that Shaily Engineering Plastics' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has lead to Shaily Engineering Plastics' P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Shaily Engineering Plastics shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Shaily Engineering Plastics, and understanding should be part of your investment process.

If you're unsure about the strength of Shaily Engineering Plastics' 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.