Why Investors Shouldn't Be Surprised By Texmaco Rail & Engineering Limited's (NSE:TEXRAIL) 29% Share Price Surge

Texmaco Rail & Engineering Limited (NSE:TEXRAIL) shares have continued their recent momentum with a 29% gain in the last month alone. The last month tops off a massive increase of 168% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Texmaco Rail & Engineering's price-to-sales (or "P/S") ratio of 3.1x is worth a mention when it essentially matches the median P/S in India's Machinery industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Texmaco Rail & Engineering

How Has Texmaco Rail & Engineering Performed Recently?

Recent times have been advantageous for Texmaco Rail & Engineering as its revenues have been rising faster 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Texmaco Rail & Engineering's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Texmaco Rail & Engineering's Revenue Growth Trending?

In order to justify its P/S ratio, Texmaco Rail & Engineering would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. The latest three year period has also seen an excellent 107% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 16% per annum during the coming three years according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 15% per year, which is not materially different.

With this information, we can see why Texmaco Rail & Engineering is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Texmaco Rail & Engineering's P/S?

Texmaco Rail & Engineering appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

We've seen that Texmaco Rail & Engineering maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Texmaco Rail & Engineering 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.

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