The Price Is Right For Sat Industries Limited (NSE:SATINDLTD) Even After Diving 28%

Sat Industries Limited (NSE:SATINDLTD) shares have had a horrible month, losing 28% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 10% in the last year.

Although its price has dipped substantially, you could still be forgiven for thinking Sat Industries is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.3x, considering almost half the companies in India's Metals and Mining industry have P/S ratios below 1.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Sat Industries

What Does Sat Industries' Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Sat Industries, which is generally not a bad outcome. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sat Industries will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.0% last year. This was backed up an excellent period prior to see revenue up by 96% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

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

With this in consideration, it's not hard to understand why Sat Industries' P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Despite the recent share price weakness, Sat Industries' P/S remains higher than most other companies in the industry. 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.

We've established that Sat Industries maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Sat Industries (1 can't be ignored) you should be aware of.

If you're unsure about the strength of Sat Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.