After Leaping 27% Dixon Technologies (India) Limited (NSE:DIXON) Shares Are Not Flying Under The Radar

Despite an already strong run, Dixon Technologies (India) Limited (NSE:DIXON) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 200% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, you could be forgiven for thinking Dixon Technologies (India) is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.1x, considering almost half the companies in India's Consumer Durables industry have P/S ratios below 2.4x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Dixon Technologies (India)

What Does Dixon Technologies (India)'s P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Dixon Technologies (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 Dixon Technologies (India).

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Dixon Technologies (India)'s to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 102% last year. The strong recent performance means it was also able to grow revenue by 208% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 36% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 29% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Dixon Technologies (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 Bottom Line On Dixon Technologies (India)'s P/S

The large bounce in Dixon Technologies (India)'s shares has lifted the company's P/S handsomely. 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 Dixon Technologies (India) shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Dixon Technologies (India).

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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

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.