Fiberweb (India) Limited's (NSE:FIBERWEB) Shares Climb 44% But Its Business Is Yet to Catch Up

Despite an already strong run, Fiberweb (India) Limited (NSE:FIBERWEB) shares have been powering on, with a gain of 44% in the last thirty days. The last month tops off a massive increase of 113% in the last year.

Since its price has surged higher, when almost half of the companies in India's Luxury industry have price-to-sales ratios (or "P/S") below 1x, you may consider Fiberweb (India) as a stock probably not worth researching with its 2.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Fiberweb (India)

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

Recent times have been quite advantageous for Fiberweb (India) as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fiberweb (India)'s earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Fiberweb (India)?

The only time you'd be truly comfortable seeing a P/S as high as Fiberweb (India)'s is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 30%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 20% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.

In light of this, it's alarming that Fiberweb (India)'s P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Fiberweb (India)'s P/S

The large bounce in Fiberweb (India)'s shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Fiberweb (India) currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 3 warning signs for Fiberweb (India) (2 are potentially serious!) 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