Sterling and Wilson Renewable Energy Limited's (NSE:SWSOLAR) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Sterling and Wilson Renewable Energy Limited (NSE:SWSOLAR) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 59% in the last year.

Although its price has dipped substantially, you could still be forgiven for thinking Sterling and Wilson Renewable Energy is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in India's Construction industry have P/S ratios below 2.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See 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. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Sterling and Wilson Renewable Energy's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Sterling and Wilson Renewable Energy's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 159%. Still, revenue has fallen 34% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 158% over the next year. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this information, we can see why Sterling and Wilson Renewable Energy is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

There's still some elevation in Sterling and Wilson Renewable Energy's P/S, even if the same can't be said for its share price recently. 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.

Our look into Sterling and Wilson Renewable Energy shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Sterling and Wilson Renewable Energy that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.