Sterling and Wilson Renewable Energy Limited (NSE:SWSOLAR) Might Not Be As Mispriced As It Looks After Plunging 26%

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. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Sterling and Wilson Renewable Energy's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in India's Construction industry is similar at about 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Sterling and Wilson Renewable Energy

How Sterling and Wilson Renewable Energy Has Been Performing

Sterling and Wilson Renewable Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sterling and Wilson Renewable Energy.

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

Sterling and Wilson Renewable Energy's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

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.

Turning to the outlook, the next year should generate growth of 66% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Sterling and Wilson Renewable Energy's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Sterling and Wilson Renewable Energy's P/S Mean For Investors?

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. 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.

Looking at Sterling and Wilson Renewable Energy's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

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

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.