Market Cool On Sterling and Wilson Renewable Energy Limited's (NSE:SWSOLAR) Revenues Pushing Shares 26% Lower

Unfortunately for some shareholders, the Sterling and Wilson Renewable Energy Limited (NSE:SWSOLAR) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Sterling and Wilson Renewable Energy's price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in India's Construction industry is similar at about 2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Sterling and Wilson Renewable Energy

What Does Sterling and Wilson Renewable Energy's Recent Performance Look Like?

Sterling and Wilson Renewable Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Sterling and Wilson Renewable Energy will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Sterling and Wilson Renewable Energy?

The only time you'd be comfortable seeing a P/S like Sterling and Wilson Renewable Energy's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 155%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 9.7% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 65% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

With this information, we find it interesting that Sterling and Wilson Renewable Energy is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Sterling and Wilson Renewable Energy's P/S

Sterling and Wilson Renewable Energy's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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've established that Sterling and Wilson Renewable Energy currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Sterling and Wilson Renewable Energy you should be aware of.

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.