Suzlon Energy Limited's (NSE:SUZLON) P/S Is Still On The Mark Following 26% Share Price Bounce

Suzlon Energy Limited (NSE:SUZLON) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 257% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Suzlon Energy's price-to-sales (or "P/S") ratio of 13.2x might make it look like a strong sell right now compared to other companies in the Electrical industry in India, where around half of the companies have P/S ratios below 3.6x and even P/S below 1.4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Suzlon Energy

What Does Suzlon Energy's Recent Performance Look Like?

Suzlon Energy's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Suzlon Energy's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Suzlon Energy would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 83% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 73% during the coming year according to the six analysts following the company. With the industry only predicted to deliver 33%, the company is positioned for a stronger revenue result.

With this information, we can see why Suzlon Energy is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Suzlon Energy's P/S Mean For Investors?

Suzlon Energy's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Suzlon Energy's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

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

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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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