Omaxe Limited (NSE:OMAXE) Looks Inexpensive After Falling 25% But Perhaps Not Attractive Enough

The Omaxe Limited (NSE:OMAXE) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 64%, which is great even in a bull market.

Since its price has dipped substantially, Omaxe's price-to-sales (or "P/S") ratio of 1.1x might make it look like a strong buy right now compared to the wider Real Estate industry in India, where around half of the companies have P/S ratios above 5.6x and even P/S above 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Omaxe

How Has Omaxe Performed Recently?

Omaxe certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 110%. Pleasingly, revenue has also lifted 108% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 40% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Omaxe's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Omaxe's P/S Mean For Investors?

Omaxe's P/S looks about as weak as its stock price lately. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Omaxe revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 2 warning signs we've spotted with Omaxe (including 1 which can't be ignored).

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.