Revenues Tell The Story For Kaynes Technology India Limited (NSE:KAYNES) As Its Stock Soars 30%

Kaynes Technology India Limited (NSE:KAYNES) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 124% in the last year.

After such a large jump in price, you could be forgiven for thinking Kaynes Technology India is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 14.9x, considering almost half the companies in India's Electronic industry have P/S ratios below 2.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Our free stock report includes 1 warning sign investors should be aware of before investing in Kaynes Technology India. Read for free now.

View our latest analysis for Kaynes Technology India

How Has Kaynes Technology India Performed Recently?

Recent times haven't been great for Kaynes Technology India as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kaynes Technology India.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Kaynes Technology India would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 55% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 236% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 46% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 14% per year, which is noticeably less attractive.

In light of this, it's understandable that Kaynes Technology India's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Kaynes Technology India's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Kaynes Technology India's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Kaynes Technology India.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.