Further Upside For Genus Paper & Boards Limited (NSE:GENUSPAPER) Shares Could Introduce Price Risks After 33% Bounce

Genus Paper & Boards Limited (NSE:GENUSPAPER) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 63% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Genus Paper & Boards' price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S in India's Forestry industry is similar at about 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 Genus Paper & Boards

What Does Genus Paper & Boards' Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Genus Paper & Boards, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Genus Paper & Boards?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Genus Paper & Boards' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.4% last year. Pleasingly, revenue has also lifted 239% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 20% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Genus Paper & Boards' P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Genus Paper & Boards' P/S Mean For Investors?

Genus Paper & Boards appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

To our surprise, Genus Paper & Boards revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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.

You should always think about risks. Case in point, we've spotted 4 warning signs for Genus Paper & Boards you should be aware of, and 2 of them are a bit unpleasant.

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.