There's Reason For Concern Over Transformers and Rectifiers (India) Limited's (NSE:TRIL) Massive 26% Price Jump

Despite an already strong run, Transformers and Rectifiers (India) Limited (NSE:TRIL) shares have been powering on, with a gain of 26% in the last thirty days. This latest share price bounce rounds out a remarkable 314% gain over the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Transformers and Rectifiers (India)'s price-to-sales (or "P/S") ratio of 2.8x right now seems quite "middle-of-the-road" compared to the Electrical industry in India, where the median P/S ratio is around 2.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Transformers and Rectifiers (India)

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

As an illustration, revenue has deteriorated at Transformers and Rectifiers (India) over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Transformers and Rectifiers (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Transformers and Rectifiers (India)?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.5%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 76% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 28% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Transformers and Rectifiers (India)'s P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Transformers and Rectifiers (India)'s P/S

Transformers and Rectifiers (India)'s stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

We've established that Transformers and Rectifiers (India)'s average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You should always think about risks. Case in point, we've spotted 4 warning signs for Transformers and Rectifiers (India) you should be aware of, and 1 of them can't be ignored.

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.