Slammed 28% 63 moons technologies limited (NSE:63MOONS) Screens Well Here But There Might Be A Catch

63 moons technologies limited (NSE:63MOONS) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 174%.

In spite of the heavy fall in price, it's still not a stretch to say that 63 moons technologies' price-to-sales (or "P/S") ratio of 4.3x right now seems quite "middle-of-the-road" compared to the Software industry in India, where the median P/S ratio is around 4.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for 63 moons technologies

How Has 63 moons technologies Performed Recently?

Recent times have been quite advantageous for 63 moons technologies as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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 not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on 63 moons technologies will help you shine a light on its historical performance.

How Is 63 moons technologies' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like 63 moons technologies' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 185% last year. The strong recent performance means it was also able to grow revenue by 204% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 20% shows it's noticeably more attractive.

With this information, we find it interesting that 63 moons technologies is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does 63 moons technologies' P/S Mean For Investors?

63 moons technologies' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that 63 moons technologies currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for 63 moons technologies that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.