Revenues Tell The Story For Laurus Labs Limited (NSE:LAURUSLABS) As Its Stock Soars 28%

The Laurus Labs Limited (NSE:LAURUSLABS) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 88%.

After such a large jump in price, when almost half of the companies in India's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Laurus Labs as a stock not worth researching with its 8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Laurus Labs

What Does Laurus Labs' Recent Performance Look Like?

Laurus Labs could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Laurus Labs will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Laurus Labs' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. Revenue has also lifted 13% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 14% per year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 12% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Laurus Labs is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Laurus Labs' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 look into Laurus Labs shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Laurus Labs that you should be aware of.

If these risks are making you reconsider your opinion on Laurus Labs, 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.