Transformers and Rectifiers (India) Limited (NSE:TARIL) Stocks Shoot Up 26% But Its P/S Still Looks Reasonable

Transformers and Rectifiers (India) Limited (NSE:TARIL) shares have continued their recent momentum with a 26% gain in the last month alone. This latest share price bounce rounds out a remarkable 498% gain over the last twelve months.

Following the firm bounce in price, Transformers and Rectifiers (India) may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 10.1x, when you consider almost half of the companies in the Electrical industry in India have P/S ratios under 3.7x and even P/S lower than 1.6x aren't out of the ordinary. 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)

What Does Transformers and Rectifiers (India)'s Recent Performance Look Like?

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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Transformers and Rectifiers (India) will help you uncover what's on the horizon.

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

Transformers and Rectifiers (India)'s P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 42% last year. The latest three year period has also seen an excellent 78% overall rise in revenue, aided by its short-term performance. 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 61% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 33%, which is noticeably less attractive.

With this information, we can see why Transformers and Rectifiers (India) 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 Key Takeaway

Shares in Transformers and Rectifiers (India) have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You need to take note of risks, for example - Transformers and Rectifiers (India) has 2 warning signs (and 1 which is concerning) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.