Investors Still Aren't Entirely Convinced By Goldstone Technologies Limited's (NSE:GOLDTECH) Revenues Despite 32% Price Jump

Goldstone Technologies Limited (NSE:GOLDTECH) shares have continued their recent momentum with a 32% gain in the last month alone. The last month tops off a massive increase of 181% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Goldstone Technologies' price-to-sales (or "P/S") ratio of 4.9x is worth a mention when the median P/S in India's IT industry is similar at about 4.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Goldstone Technologies

What Does Goldstone Technologies' Recent Performance Look Like?

Recent times have been quite advantageous for Goldstone Technologies as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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 Goldstone Technologies' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Goldstone Technologies?

In order to justify its P/S ratio, Goldstone Technologies would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 35% gain to the company's top line. The latest three year period has also seen an excellent 107% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 7.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Goldstone Technologies is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Goldstone Technologies' P/S Mean For Investors?

Goldstone Technologies' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Goldstone Technologies currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 1 warning sign for Goldstone Technologies that you need to take into consideration.

If these risks are making you reconsider your opinion on Goldstone Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.