Market Participants Recognise E2E Networks Limited's (NSE:E2E) Revenues Pushing Shares 28% Higher

Despite an already strong run, E2E Networks Limited (NSE:E2E) shares have been powering on, with a gain of 28% in the last thirty days. This latest share price bounce rounds out a remarkable 759% gain over the last twelve months.

Since its price has surged higher, when almost half of the companies in India's IT industry have price-to-sales ratios (or "P/S") below 4x, you may consider E2E Networks as a stock not worth researching with its 21.7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for E2E Networks

How Has E2E Networks Performed Recently?

With revenue growth that's exceedingly strong of late, E2E Networks has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on E2E Networks will help you shine a light on its historical performance.

How Is E2E Networks' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as E2E Networks' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 172% in total 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 6.4%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why E2E Networks is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From E2E Networks' P/S?

The strong share price surge has lead to E2E Networks' P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that E2E Networks can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you settle on your opinion, we've discovered 2 warning signs for E2E Networks (1 is concerning!) that 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.