Investors Appear Satisfied With Solar Industries India Limited's (NSE:SOLARINDS) Prospects As Shares Rocket 27%

Solar Industries India Limited (NSE:SOLARINDS) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

After such a large jump in price, when almost half of the companies in India's Chemicals industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Solar Industries India as a stock not worth researching with its 14.6x 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.

Check out our latest analysis for Solar Industries India

What Does Solar Industries India's P/S Mean For Shareholders?

Solar Industries India's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Solar Industries India's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Solar Industries India's Revenue Growth Trending?

In order to justify its P/S ratio, Solar Industries India would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.3% gain to the company's revenues. Pleasingly, revenue has also lifted 104% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 26% during the coming year according to the five analysts following the company. With the industry only predicted to deliver 14%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Solar Industries India's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to Solar Industries India's P/S soaring as well. 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.

Our look into Solar Industries India shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Solar Industries India with six simple checks will allow you to discover any risks that could be an issue.

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.

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.