After Leaping 32% Transformers and Rectifiers (India) Limited (NSE:TARIL) Shares Are Not Flying Under The Radar

Transformers and Rectifiers (India) Limited (NSE:TARIL) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. The last 30 days were the cherry on top of the stock's 463% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, when almost half of the companies in India's Electrical industry have price-to-sales ratios (or "P/S") below 3.6x, you may consider Transformers and Rectifiers (India) as a stock not worth researching with its 7.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Transformers and Rectifiers (India)

How Has Transformers and Rectifiers (India) Performed Recently?

With revenue growth that's superior to most other companies of late, Transformers and Rectifiers (India) has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Transformers and Rectifiers (India).

How Is Transformers and Rectifiers (India)'s Revenue Growth Trending?

In order to justify its P/S ratio, Transformers and Rectifiers (India) would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 42%. The strong recent performance means it was also able to grow revenue by 78% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 61% as estimated by the two analysts watching the company. With the industry only predicted to deliver 34%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Transformers and Rectifiers (India)'s P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Transformers and Rectifiers (India)'s P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Transformers and Rectifiers (India)'s analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 2 warning signs for Transformers and Rectifiers (India) (1 is a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of Transformers and Rectifiers (India)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.