Dishman Carbogen Amcis Limited's (NSE:DCAL) Share Price Boosted 29% But Its Business Prospects Need A Lift Too

Dishman Carbogen Amcis Limited (NSE:DCAL) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Dishman Carbogen Amcis may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.5x, since almost half of all companies in the Life Sciences industry in India have P/S ratios greater than 3.8x and even P/S higher than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Dishman Carbogen Amcis

What Does Dishman Carbogen Amcis' Recent Performance Look Like?

Dishman Carbogen Amcis has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dishman Carbogen Amcis will help you shine a light on its historical performance.

How Is Dishman Carbogen Amcis' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Dishman Carbogen Amcis' to be considered reasonable.

Retrospectively, the last year delivered a decent 9.2% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 36% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Dishman Carbogen Amcis' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Dishman Carbogen Amcis' P/S

Dishman Carbogen Amcis' recent share price jump still sees fails to bring its P/S alongside the industry median. 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 examination of Dishman Carbogen Amcis confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Dishman Carbogen Amcis you should know about.

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.