Optimistic Investors Push Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) Shares Up 33% But Growth Is Lacking

Despite an already strong run, Bajaj Hindusthan Sugar Limited (NSE:BAJAJHIND) shares have been powering on, with a gain of 33% in the last thirty days. The annual gain comes to 141% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that Bajaj Hindusthan Sugar's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Food industry in India, where the median P/S ratio is around 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.

View our latest analysis for Bajaj Hindusthan Sugar

What Does Bajaj Hindusthan Sugar's P/S Mean For Shareholders?

Bajaj Hindusthan Sugar has been doing a decent job lately as it's been growing revenue at a reasonable pace. 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. Those who are bullish on Bajaj Hindusthan Sugar will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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?

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 7.2% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 2.9% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

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.

In light of this, it's somewhat alarming that Bajaj Hindusthan Sugar's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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.

What We Can Learn From Bajaj Hindusthan Sugar's P/S?

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.

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.

Before you settle on your opinion, we've discovered 2 warning signs for Bajaj Hindusthan Sugar (1 is concerning!) that 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.