Mahamaya Steel Industries Limited (NSE:MAHASTEEL) Stock Rockets 40% As Investors Are Less Pessimistic Than Expected

Mahamaya Steel Industries Limited (NSE:MAHASTEEL) shares have continued their recent momentum with a 40% gain in the last month alone. The last month tops off a massive increase of 254% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Mahamaya Steel Industries' price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in India's Metals and Mining industry is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Mahamaya Steel Industries

What Does Mahamaya Steel Industries' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Mahamaya Steel Industries, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

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Is There Some Revenue Growth Forecasted For Mahamaya Steel Industries?

Mahamaya Steel Industries' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.0% last year. Pleasingly, revenue has also lifted 45% 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.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 19% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Mahamaya Steel Industries' 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 Key Takeaway

Mahamaya Steel Industries 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.

We've established that Mahamaya Steel Industries' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

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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.