Stock Analysis

Improved Revenues Required Before Lasa Supergenerics Limited (NSE:LASA) Stock's 25% Jump Looks Justified

NSEI:LASA
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The Lasa Supergenerics Limited (NSE:LASA) share price has done very well over the last month, posting an excellent gain of 25%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.1% in the last twelve months.

Even after such a large jump in price, Lasa Supergenerics may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.4x, considering almost half of all companies in the Pharmaceuticals industry in India have P/S ratios greater than 2.5x and even P/S higher than 5x aren't out of the ordinary. 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 Lasa Supergenerics

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NSEI:LASA Price to Sales Ratio vs Industry December 28th 2023

What Does Lasa Supergenerics' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Lasa Supergenerics over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you 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.

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

How Is Lasa Supergenerics' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 5.9% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 38% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Lasa Supergenerics is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Lasa Supergenerics' P/S?

Lasa Supergenerics' stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Lasa Supergenerics confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. 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.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Lasa Supergenerics (2 can't be ignored!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Lasa Supergenerics is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.