Improved Revenues Required Before RSWM Limited (NSE:RSWM) Stock's 26% Jump Looks Justified

Despite an already strong run, RSWM Limited (NSE:RSWM) shares have been powering on, with a gain of 26% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, it would still be understandable if you think RSWM is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in India's Luxury industry have P/S ratios above 1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for RSWM

What Does RSWM's P/S Mean For Shareholders?

The revenue growth achieved at RSWM over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on RSWM will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For RSWM?

The only time you'd be truly comfortable seeing a P/S as low as RSWM's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. As a result, it also grew revenue by 26% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that RSWM's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does RSWM's P/S Mean For Investors?

Despite RSWM's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

In line with expectations, RSWM maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you take the next step, you should know about the 2 warning signs for RSWM that we have uncovered.

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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.