Bajaj Hindusthan Sugar Limited's (NSE:BAJAJHIND) Shares Climb 28% But Its Business Is Yet to Catch Up

Despite an already strong run, Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 162% in the last year.

Although its price has surged higher, there still wouldn't be many who think Bajaj Hindusthan Sugar's price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S in India's Food industry is similar at about 1.1x. 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 Bajaj Hindusthan Sugar

How Has Bajaj Hindusthan Sugar Performed Recently?

For example, consider that Bajaj Hindusthan Sugar's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. 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 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.

Retrospectively, the last year delivered a frustrating 3.7% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 8.4% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 11% 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. 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 Final Word

Bajaj Hindusthan Sugar's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

The fact that Bajaj Hindusthan Sugar currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Bajaj Hindusthan Sugar (of which 1 doesn't sit too well with us!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.