Revenues Working Against Sanginita Chemicals Limited's (NSE:SANGINITA) Share Price Following 26% Dive

Sanginita Chemicals Limited (NSE:SANGINITA) shares have had a horrible month, losing 26% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 21%.

In spite of the heavy fall in price, Sanginita Chemicals may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Chemicals industry in India have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. 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 Sanginita Chemicals

What Does Sanginita Chemicals' P/S Mean For Shareholders?

For example, consider that Sanginita Chemicals' financial performance has been poor lately as its revenue has been in decline. 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 Sanginita Chemicals' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Sanginita Chemicals' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 11% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Sanginita Chemicals is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Sanginita Chemicals' P/S

Sanginita Chemicals' recently weak share price has pulled its P/S back below other Chemicals companies. 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.

Our examination of Sanginita Chemicals confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Sanginita Chemicals, and understanding them should be part of your investment process.

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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