Why Investors Shouldn't Be Surprised By Dishman Carbogen Amcis Limited's (NSE:DCAL) 31% Share Price Plunge

To the annoyance of some shareholders, Dishman Carbogen Amcis Limited (NSE:DCAL) shares are down a considerable 31% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 31% in the last year.

After such a large drop in price, Dishman Carbogen Amcis may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Life Sciences industry in India have P/S ratios greater than 2.9x and even P/S higher than 7x are not unusual. 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 Dishman Carbogen Amcis

What Does Dishman Carbogen Amcis' Recent Performance Look Like?

Revenue has risen firmly for Dishman Carbogen Amcis recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Dishman Carbogen Amcis, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 9.2% last year. The latest three year period has also seen an excellent 36% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Dishman Carbogen Amcis' P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Dishman Carbogen Amcis' recently weak share price has pulled its P/S back below other Life Sciences companies. 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Dishman Carbogen Amcis (1 is a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of Dishman Carbogen Amcis' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.