Dixon Technologies (India) Limited's (NSE:DIXON) P/S Is Still On The Mark Following 35% Share Price Bounce

Dixon Technologies (India) Limited (NSE:DIXON) shares have continued their recent momentum with a 35% gain in the last month alone. The annual gain comes to 137% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, when almost half of the companies in India's Consumer Durables industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider Dixon Technologies (India) as a stock probably not worth researching with its 3.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Dixon Technologies (India)

How Dixon Technologies (India) Has Been Performing

Recent times have been advantageous for Dixon Technologies (India) as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. 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).

Is There Enough Revenue Growth Forecasted For Dixon Technologies (India)?

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 45% last year. The strong recent performance means it was also able to grow revenue by 174% 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 39% per annum over the next three years. That's shaping up to be materially higher than the 23% each year growth forecast for the broader industry.

In light of this, it's understandable that Dixon Technologies (India)'s P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Dixon Technologies (India) shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Dixon Technologies (India) that you need to be mindful of.

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.

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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