Puravankara Limited's (NSE:PURVA) Shares Bounce 29% But Its Business Still Trails The Industry

Puravankara Limited (NSE:PURVA) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 130% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Puravankara may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.9x, considering almost half of all companies in the Real Estate industry in India have P/S ratios greater than 7.4x and even P/S higher than 21x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Puravankara

What Does Puravankara's P/S Mean For Shareholders?

Recent times have been advantageous for Puravankara as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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.

Keen to find out how analysts think Puravankara's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Puravankara's Revenue Growth Trending?

Puravankara's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 83%. The latest three year period has also seen an excellent 167% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 5.2% during the coming year according to the only analyst following the company. With the industry predicted to deliver 40% growth, that's a disappointing outcome.

In light of this, it's understandable that Puravankara's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Puravankara's P/S?

The latest share price surge wasn't enough to lift Puravankara's P/S close to the industry median. 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.

As we suspected, our examination of Puravankara's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

You always need to take note of risks, for example - Puravankara has 3 warning signs we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.