Revenues Not Telling The Story For Zuari Industries Limited (NSE:ZUARIIND) After Shares Rise 44%

Despite an already strong run, Zuari Industries Limited (NSE:ZUARIIND) shares have been powering on, with a gain of 44% in the last thirty days. The last month tops off a massive increase of 197% in the last year.

Although its price has surged higher, it's still not a stretch to say that Zuari Industries' price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Food industry in India, where the median P/S ratio is around 1x. 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 Zuari Industries

How Zuari Industries Has Been Performing

As an illustration, revenue has deteriorated at Zuari Industries over the last year, which is not ideal at all. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Zuari Industries' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 7.7% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 1.5% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Zuari Industries' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Zuari Industries' P/S Mean For Investors?

Zuari Industries appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

The fact that Zuari Industries 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Zuari Industries (1 is potentially serious!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.