Visaka Industries Limited (NSE:VISAKAIND) Stock Rockets 37% But Many Are Still Ignoring The Company

Visaka Industries Limited (NSE:VISAKAIND) shareholders have had their patience rewarded with a 37% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 38%.

Even after such a large jump in price, Visaka Industries' price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Basic Materials industry in India, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Visaka Industries

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

Visaka Industries hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

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 1.4% decrease to the company's top line. Still, the latest three year period has seen an excellent 63% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue growth will be highly resilient over the next year growing by 152%. Meanwhile, the broader industry is forecast to contract by 8.7%, which would indicate the company is doing very well.

With this information, we find it very odd that Visaka Industries is trading at a P/S lower than the industry. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

What We Can Learn From Visaka Industries' P/S?

The latest share price surge wasn't enough to lift Visaka Industries' P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Visaka Industries' analyst forecasts has shown that it could be trading at a significant discount in terms of P/S, as it is expected to far outperform the industry. When we see a superior revenue outlook with some actual growth, we can only assume investor uncertainty is what's been suppressing the P/S figures. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Visaka Industries (1 doesn't sit too well with us) you should be aware of.

If these risks are making you reconsider your opinion on Visaka Industries, 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.