Pioneer Embroideries Limited's (NSE:PIONEEREMB) Shares Leap 28% Yet They're Still Not Telling The Full Story

Pioneer Embroideries Limited (NSE:PIONEEREMB) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 50%.

Although its price has surged higher, there still wouldn't be many who think Pioneer Embroideries' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in India's Luxury industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Pioneer Embroideries

How Pioneer Embroideries Has Been Performing

As an illustration, revenue has deteriorated at Pioneer Embroideries over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability 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 Pioneer Embroideries' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Pioneer Embroideries?

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

Retrospectively, the last year delivered a frustrating 3.1% decrease to the company's top line. Even so, admirably revenue has lifted 59% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Pioneer Embroideries is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Its shares have lifted substantially and now Pioneer Embroideries' P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Pioneer Embroideries currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Pioneer Embroideries (2 are potentially serious!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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