Benign Growth For Burnpur Cement Limited (NSE:BURNPUR) Underpins Stock's 29% Plummet

Burnpur Cement Limited (NSE:BURNPUR) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 58% in the last year.

Following the heavy fall in price, Burnpur Cement may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Basic Materials industry in India have P/S ratios greater than 1.8x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Burnpur Cement

How Burnpur Cement Has Been Performing

For example, consider that Burnpur Cement's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on Burnpur Cement will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

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

The only time you'd be truly comfortable seeing a P/S as low as Burnpur Cement's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 49%. This means it has also seen a slide in revenue over the longer-term as revenue is down 40% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to decline by 14% over the next year, or less than the company's recent medium-term annualised revenue decline.

With this in consideration, it's no surprise that Burnpur Cement's P/S falls short of its industry peers. However, when revenue shrink rapidly P/S often shrinks too, which could set up shareholders for future disappointment regardless. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares heavily.

What Does Burnpur Cement's P/S Mean For Investors?

Burnpur Cement's recently weak share price has pulled its P/S back below other Basic Materials companies. 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.

As expected, our analysis of Burnpur Cement confirms that the company's severe contraction in revenue over the past three-year years is a major contributor to its lower than industry P/S, given the industry is set to decline less. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Although, we would be concerned whether the company can even maintain its medium-term level of performance under these tough industry conditions. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for Burnpur Cement that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.