Bajaj Hindusthan Sugar Limited's (NSE:BAJAJHIND) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that Bajaj Hindusthan Sugar's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Food industry in India, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Bajaj Hindusthan Sugar

What Does Bajaj Hindusthan Sugar's Recent Performance Look Like?

For example, consider that Bajaj Hindusthan Sugar's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Bajaj Hindusthan Sugar's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 6.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 1.0% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Bajaj Hindusthan Sugar is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Bajaj Hindusthan Sugar's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We find it unexpected that Bajaj Hindusthan Sugar trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Bajaj Hindusthan Sugar with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Bajaj Hindusthan Sugar, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.