Market Might Still Lack Some Conviction On Johnson Controls-Hitachi Air Conditioning India Limited (NSE:JCHAC) Even After 32% Share Price Boost

Johnson Controls-Hitachi Air Conditioning India Limited (NSE:JCHAC) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think Johnson Controls-Hitachi Air Conditioning India's price-to-sales (or "P/S") ratio of 2x is worth a mention when it essentially matches the median P/S in India's Consumer Durables industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Johnson Controls-Hitachi Air Conditioning India

How Has Johnson Controls-Hitachi Air Conditioning India Performed Recently?

While the industry has experienced revenue growth lately, Johnson Controls-Hitachi Air Conditioning India's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Johnson Controls-Hitachi Air Conditioning India's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Johnson Controls-Hitachi Air Conditioning India's Revenue Growth Trending?

Johnson Controls-Hitachi Air Conditioning India's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 13% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 40% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Johnson Controls-Hitachi Air Conditioning India's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Johnson Controls-Hitachi Air Conditioning India's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Looking at Johnson Controls-Hitachi Air Conditioning India's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Johnson Controls-Hitachi Air Conditioning India with six simple checks will allow you to discover any risks that could be an issue.

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.