The Price Is Right For S H Kelkar and Company Limited (NSE:SHK) Even After Diving 26%

To the annoyance of some shareholders, S H Kelkar and Company Limited (NSE:SHK) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

Even after such a large drop in price, there still wouldn't be many who think S H Kelkar's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in India's Chemicals industry is similar at about 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for S H Kelkar

What Does S H Kelkar's Recent Performance Look Like?

Recent times haven't been great for S H Kelkar as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on S H Kelkar.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like S H Kelkar's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 7.7% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 33% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 14% each year over the next three years. That's shaping up to be similar to the 13% per annum growth forecast for the broader industry.

With this information, we can see why S H Kelkar is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From S H Kelkar's P/S?

Following S H Kelkar's share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A S H Kelkar's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Chemicals industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

It is also worth noting that we have found 3 warning signs for S H Kelkar (1 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.