Revenues Tell The Story For Sadhana Nitro Chem Limited (NSE:SADHNANIQ) As Its Stock Soars 26%

Sadhana Nitro Chem Limited (NSE:SADHNANIQ) shareholders have had their patience rewarded with a 26% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

Since its price has surged higher, given around half the companies in India's Chemicals industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Sadhana Nitro Chem as a stock to avoid entirely with its 10.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Sadhana Nitro Chem

What Does Sadhana Nitro Chem's P/S Mean For Shareholders?

Recent times have been quite advantageous for Sadhana Nitro Chem as its revenue has been rising very briskly. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability 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 Sadhana Nitro Chem's earnings, revenue and cash flow.

How Is Sadhana Nitro Chem's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Sadhana Nitro Chem's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. The strong recent performance means it was also able to grow revenue by 84% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Sadhana Nitro Chem is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Sadhana Nitro Chem's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Sadhana Nitro Chem 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. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you take the next step, you should know about the 2 warning signs for Sadhana Nitro Chem that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com