A Piece Of The Puzzle Missing From Shradha Infraprojects Limited's (NSE:SHRADHA) 45% Share Price Climb

Despite an already strong run, Shradha Infraprojects Limited (NSE:SHRADHA) shares have been powering on, with a gain of 45% in the last thirty days. The last month tops off a massive increase of 125% in the last year.

Although its price has surged higher, Shradha Infraprojects may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Real Estate industry in India have P/S ratios greater than 6.3x and even P/S higher than 15x aren't out of the ordinary. 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 Shradha Infraprojects

How Shradha Infraprojects Has Been Performing

Recent times have been quite advantageous for Shradha Infraprojects as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Shradha Infraprojects will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Shradha Infraprojects' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 33%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Shradha Infraprojects is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Shradha Infraprojects' P/S

Even after such a strong price move, Shradha Infraprojects' P/S still trails the rest of the industry. 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.

We're very surprised to see Shradha Infraprojects currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 6 warning signs for Shradha Infraprojects (1 can't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Shradha Infraprojects, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.