A Piece Of The Puzzle Missing From SPML Infra Limited's (NSE:SPMLINFRA) 30% Share Price Climb

SPML Infra Limited (NSE:SPMLINFRA) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days were the cherry on top of the stock's 385% gain in the last year, which is nothing short of spectacular.

In spite of the firm bounce in price, SPML Infra may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Construction industry in India have P/S ratios greater than 2.2x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for SPML Infra

What Does SPML Infra's P/S Mean For Shareholders?

Recent times have been quite advantageous for SPML Infra as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on SPML Infra will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

SPML Infra's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 100% last year. The strong recent performance means it was also able to grow revenue by 64% 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.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that SPML Infra is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite SPML Infra's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see SPML Infra currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for SPML Infra (2 shouldn't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on SPML Infra, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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