Madhya Bharat Agro Products Limited's (NSE:MBAPL) P/S Is Still On The Mark Following 29% Share Price Bounce

Madhya Bharat Agro Products Limited (NSE:MBAPL) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, given close to half the companies operating in India's Chemicals industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Madhya Bharat Agro Products as a stock to potentially avoid with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Madhya Bharat Agro Products

What Does Madhya Bharat Agro Products' Recent Performance Look Like?

For example, consider that Madhya Bharat Agro Products' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Madhya Bharat Agro Products?

In order to justify its P/S ratio, Madhya Bharat Agro Products would need to produce impressive growth in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.4%. Even so, admirably revenue has lifted 269% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 16% shows it's noticeably more attractive.

In light of this, it's understandable that Madhya Bharat Agro Products' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does Madhya Bharat Agro Products' P/S Mean For Investors?

Madhya Bharat Agro Products' P/S is on the rise since its shares have risen strongly. 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.

It's no surprise that Madhya Bharat Agro Products can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Madhya Bharat Agro Products is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.