Take Care Before Jumping Onto Shree Renuka Sugars Limited (NSE:RENUKA) Even Though It's 25% Cheaper

Shree Renuka Sugars Limited (NSE:RENUKA) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Shree Renuka Sugars' P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Food industry in India is also close to 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shree Renuka Sugars

What Does Shree Renuka Sugars' Recent Performance Look Like?

Revenue has risen firmly for Shree Renuka Sugars recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. 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 Shree Renuka Sugars will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Shree Renuka Sugars?

In order to justify its P/S ratio, Shree Renuka Sugars would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. Pleasingly, revenue has also lifted 135% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Shree Renuka Sugars is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Shree Renuka Sugars' P/S

With its share price dropping off a cliff, the P/S for Shree Renuka Sugars looks to be in line with the rest of the Food 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.

We've established that Shree Renuka Sugars currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shree Renuka Sugars that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.