Revenues Not Telling The Story For Lords Chloro Alkali Limited (NSE:LORDSCHLO) After Shares Rise 36%

Lords Chloro Alkali Limited (NSE:LORDSCHLO) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 71%.

Although its price has surged higher, there still wouldn't be many who think Lords Chloro Alkali's price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S in India's Chemicals industry is similar at about 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Lords Chloro Alkali

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

Recent times have been quite advantageous for Lords Chloro Alkali as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lords Chloro Alkali's earnings, revenue and cash flow.

How Is Lords Chloro Alkali's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Lords Chloro Alkali's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. As a result, it also grew revenue by 9.1% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 15% 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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Lords Chloro Alkali's P/S Mean For Investors?

Its shares have lifted substantially and now Lords Chloro Alkali's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 2 warning signs for Lords Chloro Alkali (1 shouldn't be ignored!) that we have uncovered.

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.