Market Cool On Kellton Tech Solutions Limited's (NSE:KELLTONTEC) Revenues

Kellton Tech Solutions Limited's (NSE:KELLTONTEC) price-to-sales (or "P/S") ratio of 1.4x might make it look like a strong buy right now compared to the IT industry in India, where around half of the companies have P/S ratios above 4.4x and even P/S above 10x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Kellton Tech Solutions

How Has Kellton Tech Solutions Performed Recently?

Revenue has risen at a steady rate over the last year for Kellton Tech Solutions, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.8% last year. Revenue has also lifted 24% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.4% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that Kellton Tech Solutions' P/S falls short of its industry peers. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From Kellton Tech Solutions' P/S?

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.

Our examination of Kellton Tech Solutions revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's 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.

Plus, you should also learn about these 2 warning signs we've spotted with Kellton Tech Solutions (including 1 which is concerning).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.