Optimistic Investors Push Lords Chloro Alkali Limited (NSE:LORDSCHLO) Shares Up 37% But Growth Is Lacking

Lords Chloro Alkali Limited (NSE:LORDSCHLO) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 6.4% isn't as impressive.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Lords Chloro Alkali's P/S ratio of 1.8x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in India is about the same. 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.

View our latest analysis for Lords Chloro Alkali

What Does Lords Chloro Alkali's Recent Performance Look Like?

Lords Chloro Alkali has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Lords Chloro Alkali will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Lords Chloro Alkali's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Lords Chloro Alkali's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 4.9% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 35% in total over the last three years. 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 16% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Lords Chloro Alkali's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Lords Chloro Alkali 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.

Our examination of Lords Chloro Alkali revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Lords Chloro Alkali (1 doesn't sit too well with us!) that you need to be mindful 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.