SecureKloud Technologies Limited (NSE:SECURKLOUD) Shares Fly 28% But Investors Aren't Buying For Growth

SecureKloud Technologies Limited (NSE:SECURKLOUD) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 9.7% isn't as impressive.

In spite of the firm bounce in price, SecureKloud Technologies' price-to-sales (or "P/S") ratio of 0.5x might still make it look like a strong buy right now compared to the wider Software industry in India, where around half of the companies have P/S ratios above 5.6x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for SecureKloud Technologies

How Has SecureKloud Technologies Performed Recently?

For instance, SecureKloud Technologies' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may 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 SecureKloud Technologies' earnings, revenue and cash flow.

How Is SecureKloud Technologies' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as SecureKloud Technologies' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 18% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 15% shows it's an unpleasant look.

With this information, we are not surprised that SecureKloud Technologies is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

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

Even after such a strong price move, SecureKloud Technologies' P/S still trails the rest of the industry. 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 SecureKloud Technologies revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for SecureKloud Technologies (2 are concerning) you should be aware of.

If you're unsure about the strength of SecureKloud Technologies' 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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