Ginni Filaments Limited (NSE:GINNIFILA) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Explore Ginni Filaments's Fair Values from the Community and select yours

Despite an already strong run, Ginni Filaments Limited (NSE:GINNIFILA) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 80%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Ginni Filaments' P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Luxury industry in India is also close to 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Ginni Filaments

What Does Ginni Filaments' Recent Performance Look Like?

Revenue has risen firmly for Ginni Filaments recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 Ginni Filaments' earnings, revenue and cash flow.

How Is Ginni Filaments' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 64% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 10.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Ginni Filaments' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Ginni Filaments' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 find it unexpected that Ginni Filaments trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 4 warning signs for Ginni Filaments (2 can't be ignored!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.