Investors Still Aren't Entirely Convinced By Nagarjuna Fertilizers and Chemicals Limited's (NSE:NAGAFERT) Revenues Despite 30% Price Jump

Nagarjuna Fertilizers and Chemicals Limited (NSE:NAGAFERT) shareholders have had their patience rewarded with a 30% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.7% in the last twelve months.

Although its price has surged higher, given about half the companies operating in India's Chemicals industry have price-to-sales ratios (or "P/S") above 1.5x, you may still consider Nagarjuna Fertilizers and Chemicals as an attractive investment with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Nagarjuna Fertilizers and Chemicals

How Nagarjuna Fertilizers and Chemicals Has Been Performing

As an illustration, revenue has deteriorated at Nagarjuna Fertilizers and Chemicals over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may 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 Nagarjuna Fertilizers and Chemicals' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Nagarjuna Fertilizers and Chemicals' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.9%. Still, the latest three year period has seen an excellent 177% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.

When compared to the industry's one-year growth forecast of 12%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Nagarjuna Fertilizers and Chemicals' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Nagarjuna Fertilizers and Chemicals' P/S Mean For Investors?

Despite Nagarjuna Fertilizers and Chemicals' share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see Nagarjuna Fertilizers and Chemicals currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Plus, you should also learn about these 4 warning signs we've spotted with Nagarjuna Fertilizers and Chemicals (including 3 which are a bit unpleasant).

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.