Shakti Pumps (India) Limited (NSE:SHAKTIPUMP) Looks Just Right With A 27% Price Jump

The Shakti Pumps (India) Limited (NSE:SHAKTIPUMP) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days were the cherry on top of the stock's 471% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, you could be forgiven for thinking Shakti Pumps (India) is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.8x, considering almost half the companies in India's Machinery industry have P/S ratios below 3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Shakti Pumps (India)

What Does Shakti Pumps (India)'s Recent Performance Look Like?

Recent times have been quite advantageous for Shakti Pumps (India) as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shakti Pumps (India) will help you shine a light on its historical performance.

How Is Shakti Pumps (India)'s Revenue Growth Trending?

In order to justify its P/S ratio, Shakti Pumps (India) would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 203%. Pleasingly, revenue has also lifted 99% 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.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why Shakti Pumps (India)'s P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

Shakti Pumps (India) shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

It's no surprise that Shakti Pumps (India) can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for Shakti Pumps (India) (1 is concerning!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.