Revenues Tell The Story For Unichem Laboratories Limited (NSE:UNICHEMLAB) As Its Stock Soars 26%

Unichem Laboratories Limited (NSE:UNICHEMLAB) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Unichem Laboratories' price-to-sales (or "P/S") ratio of 3.5x is worth a mention when the median P/S in India's Pharmaceuticals industry is similar at about 3.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Unichem Laboratories

What Does Unichem Laboratories' P/S Mean For Shareholders?

The revenue growth achieved at Unichem Laboratories over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Unichem Laboratories will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Unichem Laboratories' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Unichem Laboratories' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The strong recent performance means it was also able to grow revenue by 42% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's understandable that Unichem Laboratories' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

Its shares have lifted substantially and now Unichem Laboratories' P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It appears to us that Unichem Laboratories maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

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

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.