Investors Appear Satisfied With Vasa Denticity Limited's (NSE:DENTALKART) Prospects As Shares Rocket 33%

Vasa Denticity Limited (NSE:DENTALKART) shareholders have had their patience rewarded with a 33% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, you could be forgiven for thinking Vasa Denticity is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8.8x, considering almost half the companies in India's Healthcare industry have P/S ratios below 3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Vasa Denticity

How Vasa Denticity Has Been Performing

With revenue growth that's exceedingly strong of late, Vasa Denticity has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Vasa Denticity, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Vasa Denticity's Revenue Growth Trending?

In order to justify its P/S ratio, Vasa Denticity would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why Vasa Denticity's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

The strong share price surge has lead to Vasa Denticity's P/S soaring as well. 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 Vasa Denticity maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Vasa Denticity that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.