Mohit Industries Limited (NSE:MOHITIND) Looks Inexpensive After Falling 35% But Perhaps Not Attractive Enough

The Mohit Industries Limited (NSE:MOHITIND) share price has softened a substantial 35% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 49% in the last year.

After such a large drop in price, given about half the companies operating in India's Luxury industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider Mohit Industries as an attractive investment with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Mohit Industries

What Does Mohit Industries' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Mohit Industries over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Mohit Industries will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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 Mohit Industries' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Mohit Industries?

Mohit Industries' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 37%. This means it has also seen a slide in revenue over the longer-term as revenue is down 44% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 167% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Mohit Industries is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Mohit Industries' P/S?

Mohit Industries' recently weak share price has pulled its P/S back below other Luxury companies. 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.

It's no surprise that Mohit Industries maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 3 warning signs for Mohit Industries that you should be aware of.

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.