Bajaj Hindusthan Sugar Limited's (NSE:BAJAJHIND) 33% Share Price Surge Not Quite Adding Up

Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) shares have had a really impressive month, gaining 33% after a shaky period beforehand. The annual gain comes to 177% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, there still wouldn't be many who think Bajaj Hindusthan Sugar's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in India's Food industry is similar at about 1.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Bajaj Hindusthan Sugar

How Bajaj Hindusthan Sugar Has Been Performing

The recent revenue growth at Bajaj Hindusthan Sugar would have to be considered satisfactory if not spectacular. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to 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 not quite in favour.

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 Bajaj Hindusthan Sugar's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

Bajaj Hindusthan Sugar's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.3% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 7.9% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Bajaj Hindusthan Sugar's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Bajaj Hindusthan Sugar's P/S

Bajaj Hindusthan Sugar appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Bajaj Hindusthan Sugar revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Bajaj Hindusthan Sugar you should be aware of.

If you're unsure about the strength of Bajaj Hindusthan Sugar's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.