Why We're Not Concerned Yet About Aurum PropTech Limited's (NSE:AURUMPP1) 28% Share Price Plunge

The Aurum PropTech Limited (NSE:AURUMPP1) share price has fared very poorly over the last month, falling by a substantial 28%. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

In spite of the heavy fall in price, Aurum PropTech's price-to-sales (or "P/S") ratio of 7.7x might still make it look like a strong sell right now compared to other companies in the Software industry in India, where around half of the companies have P/S ratios below 4.7x and even P/S below 1.8x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Aurum PropTech

How Has Aurum PropTech Performed Recently?

Recent times have been advantageous for Aurum PropTech as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Aurum PropTech's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Aurum PropTech?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Aurum PropTech's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 46% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

In light of this, it's understandable that Aurum PropTech'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.

What We Can Learn From Aurum PropTech's P/S?

Aurum PropTech's shares may have suffered, but its P/S remains high. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Aurum PropTech's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Aurum PropTech (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If you're unsure about the strength of Aurum PropTech'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.