Kaynes Technology India Limited's (NSE:KAYNES) Popularity With Investors Under Threat As Stock Sinks 34%

Kaynes Technology India Limited (NSE:KAYNES) shares have had a horrible month, losing 34% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 65%, which is great even in a bull market.

Although its price has dipped substantially, given around half the companies in India's Electronic industry have price-to-sales ratios (or "P/S") below 2.6x, you may still consider Kaynes Technology India as a stock to avoid entirely with its 12.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Kaynes Technology India

What Does Kaynes Technology India's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Kaynes Technology India has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Kaynes Technology India'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 Kaynes Technology India?

Kaynes Technology India's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 59%. Pleasingly, revenue has also lifted 245% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 35% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 33% each year, which is not materially different.

With this information, we find it interesting that Kaynes Technology India is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Bottom Line On Kaynes Technology India's P/S

Even after such a strong price drop, Kaynes Technology India's P/S still exceeds the industry median significantly. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given Kaynes Technology India's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

You always need to take note of risks, for example - Kaynes Technology India has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.