SPML Infra Limited (NSE:SPMLINFRA) Stock Rockets 25% But Many Are Still Ignoring The Company

Despite an already strong run, SPML Infra Limited (NSE:SPMLINFRA) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 277% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, SPML Infra's price-to-sales (or "P/S") ratio of 0.7x might still make it look like a buy right now compared to the Construction industry in India, where around half of the companies have P/S ratios above 2.1x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for SPML Infra

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

SPML Infra certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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.

Although there are no analyst estimates available for SPML Infra, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is SPML Infra's Revenue Growth Trending?

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.

Retrospectively, the last year delivered an exceptional 100% gain to the company's top line. The latest three year period has also seen an excellent 64% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that SPML Infra's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

SPML Infra's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of SPML Infra revealed its three-year revenue trends aren't boosting its P/S anywhere near 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 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. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Plus, you should also learn about these 3 warning signs we've spotted with SPML Infra (including 2 which are potentially serious).

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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