Mahamaya Steel Industries Limited's (NSE:MAHASTEEL) 25% Share Price Surge Not Quite Adding Up

The Mahamaya Steel Industries Limited (NSE:MAHASTEEL) share price has done very well over the last month, posting an excellent gain of 25%. The annual gain comes to 101% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Mahamaya Steel Industries' price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S in India's Metals and Mining industry is similar at about 1.2x. 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 Mahamaya Steel Industries

What Does Mahamaya Steel Industries' Recent Performance Look Like?

The recent revenue growth at Mahamaya Steel Industries would have to be considered satisfactory if not spectacular. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Mahamaya Steel Industries' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Mahamaya Steel Industries?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.0% last year. This was backed up an excellent period prior to see revenue up by 45% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Mahamaya Steel Industries' P/S sits in line with the majority of other companies. 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

Its shares have lifted substantially and now Mahamaya Steel Industries' P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Mahamaya Steel Industries 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.

It is also worth noting that we have found 1 warning sign for Mahamaya Steel Industries that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.