A Piece Of The Puzzle Missing From Borosil Renewables Limited's (NSE:BORORENEW) 33% Share Price Climb

Borosil Renewables Limited (NSE:BORORENEW) shareholders have had their patience rewarded with a 33% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Although its price has surged higher, Borosil Renewables may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 5.6x, since almost half of all companies in the Semiconductor industry in India have P/S ratios greater than 9.3x and even P/S higher than 20x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Borosil Renewables

What Does Borosil Renewables' P/S Mean For Shareholders?

Recent times have been quite advantageous for Borosil Renewables as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Borosil Renewables will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Borosil Renewables' earnings, revenue and cash flow.

How Is Borosil Renewables' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Borosil Renewables' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 91% gain to the company's top line. Pleasingly, revenue has also lifted 288% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 25% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Borosil Renewables' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Borosil Renewables' P/S?

Borosil Renewables' stock price has surged recently, but its but its P/S still remains modest. 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.

We're very surprised to see Borosil Renewables currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Borosil Renewables you should be aware of.

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.