Why Investors Shouldn't Be Surprised By ShreeOswal Seeds and Chemicals Limited's (NSE:OSWALSEEDS) 44% Share Price Surge

ShreeOswal Seeds and Chemicals Limited (NSE:OSWALSEEDS) shares have had a really impressive month, gaining 44% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

Even after such a large jump in price, there still wouldn't be many who think ShreeOswal Seeds and Chemicals' price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in India's Food industry is similar at about 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for ShreeOswal Seeds and Chemicals

How Has ShreeOswal Seeds and Chemicals Performed Recently?

The revenue growth achieved at ShreeOswal Seeds and Chemicals over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction 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 ShreeOswal Seeds and Chemicals' earnings, revenue and cash flow.

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

ShreeOswal Seeds and Chemicals' 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.

If we review the last year of revenue growth, the company posted a worthy increase of 15%. Pleasingly, revenue has also lifted 41% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we can see why ShreeOswal Seeds and Chemicals is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On ShreeOswal Seeds and Chemicals' P/S

ShreeOswal Seeds and Chemicals' stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

As we've seen, ShreeOswal Seeds and Chemicals' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 5 warning signs for ShreeOswal Seeds and Chemicals (2 are significant!) that you need to be mindful of.

If you're unsure about the strength of ShreeOswal Seeds and Chemicals' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.