Market Participants Recognise Multi Commodity Exchange of India Limited's (NSE:MCX) Revenues Pushing Shares 27% Higher

Despite an already strong run, Multi Commodity Exchange of India Limited (NSE:MCX) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 198% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Multi Commodity Exchange of India may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 32.3x, since almost half of all companies in the Capital Markets industry in India have P/S ratios under 7x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Multi Commodity Exchange of India

What Does Multi Commodity Exchange of India's P/S Mean For Shareholders?

Multi Commodity Exchange of India could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Multi Commodity Exchange of India.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Multi Commodity Exchange of India's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 34% last year. The latest three year period has also seen an excellent 76% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the nine analysts watching the company. With the industry only predicted to deliver 12% each year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Multi Commodity Exchange of India's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Multi Commodity Exchange of India's P/S Mean For Investors?

Shares in Multi Commodity Exchange of India have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Multi Commodity Exchange of India's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Multi Commodity Exchange of India with six simple checks will allow you to discover any risks that could be an issue.

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.