Market Participants Recognise Surani Steel Tubes Limited's (NSE:SURANI) Revenues Pushing Shares 30% Higher

Despite an already strong run, Surani Steel Tubes Limited (NSE:SURANI) shares have been powering on, with a gain of 30% in the last thirty days. This latest share price bounce rounds out a remarkable 1,062% gain over the last twelve months.

After such a large jump in price, you could be forgiven for thinking Surani Steel Tubes is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in India's Metals and Mining industry have P/S ratios below 1.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Surani Steel Tubes

How Surani Steel Tubes Has Been Performing

Revenue has risen at a steady rate over the last year for Surani Steel Tubes, which is generally not a bad outcome. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. 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 Surani Steel Tubes will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Surani Steel Tubes would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. The latest three year period has also seen an excellent 44% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 6.2% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that Surani Steel Tubes' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Bottom Line On Surani Steel Tubes' P/S

Surani Steel Tubes shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that Surani Steel Tubes maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Surani Steel Tubes (1 doesn't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on Surani Steel Tubes, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.