Subdued Growth No Barrier To Laxmi Goldorna House Limited (NSE:LGHL) With Shares Advancing 31%

The Laxmi Goldorna House Limited (NSE:LGHL) share price has done very well over the last month, posting an excellent gain of 31%. The annual gain comes to 219% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Laxmi Goldorna House may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 18.5x, when you consider almost half of the companies in the Real Estate industry in India have P/S ratios under 6.5x and even P/S lower than 3x 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 so lofty.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

View our latest analysis for Laxmi Goldorna House

How Has Laxmi Goldorna House Performed Recently?

For example, consider that Laxmi Goldorna House's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, 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.

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

How Is Laxmi Goldorna House's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Laxmi Goldorna House's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 47% decrease to the company's top line. Even so, admirably revenue has lifted 56% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 37% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Laxmi Goldorna House's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Laxmi Goldorna House's P/S

Shares in Laxmi Goldorna House have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Laxmi Goldorna House revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Laxmi Goldorna House that you should be aware of.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.