Arvind SmartSpaces Limited's (NSE:ARVSMART) P/S Is Still On The Mark Following 36% Share Price Bounce

Despite an already strong run, Arvind SmartSpaces Limited (NSE:ARVSMART) shares have been powering on, with a gain of 36% in the last thirty days. The annual gain comes to 124% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Arvind SmartSpaces may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 9.3x, since almost half of all companies in the Real Estate in India have P/S ratios under 7.1x and even P/S lower than 3x are not unusual. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Arvind SmartSpaces

What Does Arvind SmartSpaces' Recent Performance Look Like?

Arvind SmartSpaces could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Arvind SmartSpaces.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Arvind SmartSpaces' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.5% decrease to the company's top line. Still, the latest three year period has seen an excellent 44% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 52% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 40% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Arvind SmartSpaces' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Arvind SmartSpaces shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Arvind SmartSpaces 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Arvind SmartSpaces with six simple checks will allow you to discover any risks that could be an issue.

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.