Market Might Still Lack Some Conviction On Solex Energy Limited (NSE:SOLEX) Even After 29% Share Price Boost

Despite an already strong run, Solex Energy Limited (NSE:SOLEX) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 181% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Solex Energy's price-to-sales (or "P/S") ratio of 3.8x might still make it look like a strong buy right now compared to the wider Semiconductor industry in India, where around half of the companies have P/S ratios above 9x and even P/S above 22x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Solex Energy

How Solex Energy Has Been Performing

Solex Energy 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.

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 Solex Energy's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Solex Energy?

In order to justify its P/S ratio, Solex Energy would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 126% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 31%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Solex Energy's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Solex Energy's P/S?

Solex Energy's recent share price jump still sees fails to bring its P/S alongside 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.

Our examination of Solex Energy revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. 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. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You need to take note of risks, for example - Solex Energy has 3 warning signs (and 2 which are significant) we think you should know about.

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.