Market Might Still Lack Some Conviction On I G Petrochemicals Limited (NSE:IGPL) Even After 26% Share Price Boost

Despite an already strong run, I G Petrochemicals Limited (NSE:IGPL) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, I G Petrochemicals may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Chemicals industry in India have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for I G Petrochemicals

What Does I G Petrochemicals' Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, I G Petrochemicals has been very sluggish. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on I G Petrochemicals.

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

I G Petrochemicals' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 9.5% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 90% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 13% over the next year. With the industry predicted to deliver 14% growth , the company is positioned for a comparable revenue result.

In light of this, it's peculiar that I G Petrochemicals' P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

I G Petrochemicals' stock price has surged recently, but its but its P/S still remains modest. 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.

It looks to us like the P/S figures for I G Petrochemicals remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Having said that, be aware I G Petrochemicals is showing 2 warning signs in our investment analysis, you should know about.

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.

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