EPACK Durable Limited's (NSE:EPACK) 30% Cheaper Price Remains In Tune With Revenues

EPACK Durable Limited (NSE:EPACK) shares have had a horrible month, losing 30% after a relatively good period beforehand. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 116% in the last twelve months.

Even after such a large drop in price, there still wouldn't be many who think EPACK Durable's price-to-sales (or "P/S") ratio of 2.1x is worth a mention when the median P/S in India's Consumer Durables industry is similar at about 2.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for EPACK Durable

How EPACK Durable Has Been Performing

EPACK Durable could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EPACK Durable.

Is There Some Revenue Growth Forecasted For EPACK Durable?

There's an inherent assumption that a company should be matching the industry for P/S ratios like EPACK Durable's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. Pleasingly, revenue has also lifted 122% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 33% over the next year. That's shaping up to be similar to the 32% growth forecast for the broader industry.

In light of this, it's understandable that EPACK Durable's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From EPACK Durable's P/S?

EPACK Durable's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at EPACK Durable's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. 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. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with EPACK Durable, and understanding should be part of your investment process.

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.