Why Investors Shouldn't Be Surprised By Signatureglobal (India) Limited's (NSE:SIGNATURE) 34% Share Price Surge

Signatureglobal (India) Limited (NSE:SIGNATURE) shares have had a really impressive month, gaining 34% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, Signatureglobal (India) may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 16.8x, since almost half of all companies in the Real Estate industry in India have P/S ratios under 6.2x and even P/S lower than 3x are not unusual. 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.

View our latest analysis for Signatureglobal (India)

What Does Signatureglobal (India)'s Recent Performance Look Like?

While the industry has experienced revenue growth lately, Signatureglobal (India)'s revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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 Signatureglobal (India).

What Are Revenue Growth Metrics Telling Us About The High P/S?

Signatureglobal (India)'s P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 20%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Turning to the outlook, the next three years should generate growth of 103% per annum as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 32% per annum, which is noticeably less attractive.

In light of this, it's understandable that Signatureglobal (India)'s P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Signatureglobal (India) have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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've established that Signatureglobal (India) maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Real Estate industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Signatureglobal (India) (1 is a bit unpleasant!) that you need to be mindful of.

If you're unsure about the strength of Signatureglobal (India)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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