Visaka Industries Limited (NSE:VISAKAIND) Might Not Be As Mispriced As It Looks After Plunging 26%

The Visaka Industries Limited (NSE:VISAKAIND) share price has fared very poorly over the last month, falling by a substantial 26%. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

Following the heavy fall in price, it would be understandable if you think Visaka Industries is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in India's Basic Materials industry have P/S ratios above 1.5x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Visaka Industries

What Does Visaka Industries' P/S Mean For Shareholders?

For instance, Visaka Industries' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 Visaka Industries' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Visaka Industries?

In order to justify its P/S ratio, Visaka Industries would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 12% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 0.9% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

In light of this, it's quite peculiar that Visaka Industries' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Key Takeaway

The southerly movements of Visaka Industries' shares means its P/S is now sitting at a pretty low level. 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.

Looking at the figures, it's surprising to see Visaka Industries currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. While the chance of the share price dropping sharply is fairly remote, investors do seem to be anticipating future revenue instability.

Plus, you should also learn about these 4 warning signs we've spotted with Visaka Industries (including 3 which are concerning).

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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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.