Investors Still Aren't Entirely Convinced By Parag Milk Foods Limited's (NSE:PARAGMILK) Revenues Despite 29% Price Jump

Parag Milk Foods Limited (NSE:PARAGMILK) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last month tops off a massive increase of 225% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Parag Milk Foods' P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Food industry in India is also close to 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.

See our latest analysis for Parag Milk Foods

What Does Parag Milk Foods' P/S Mean For Shareholders?

The revenue growth achieved at Parag Milk Foods over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

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

Parag Milk Foods' 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 grew revenue by an impressive 19% last year. The latest three year period has also seen an excellent 62% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it interesting that Parag Milk Foods is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Parag Milk Foods' P/S?

Parag Milk Foods' 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.

We've established that Parag Milk Foods currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 1 warning sign for Parag Milk Foods that you need to take into consideration.

If you're unsure about the strength of Parag Milk Foods' 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.