IFB Industries Limited (NSE:IFBIND) Surges 32% Yet Its Low P/S Is No Reason For Excitement

IFB Industries Limited (NSE:IFBIND) shares have continued their recent momentum with a 32% gain in the last month alone. The last month tops off a massive increase of 156% in the last year.

Even after such a large jump in price, considering around half the companies operating in India's Consumer Durables industry have price-to-sales ratios (or "P/S") above 2.4x, you may still consider IFB Industries as an solid investment opportunity with its 1.9x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for IFB Industries

How IFB Industries Has Been Performing

Recent times haven't been great for IFB Industries as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like IFB Industries' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.7% last year. This was backed up an excellent period prior to see revenue up by 50% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the one analyst following the company. With the industry predicted to deliver 28% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why IFB Industries' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

IFB Industries' stock price has surged recently, but its but its P/S still remains modest. 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 IFB Industries maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 1 warning sign for IFB Industries that you need to take into consideration.

If you're unsure about the strength of IFB Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.