With Kaynes Technology India Limited (NSE:KAYNES) It Looks Like You'll Get What You Pay For

When close to half the companies in the Electronic industry in India have price-to-sales ratios (or "P/S") below 2.4x, you may consider Kaynes Technology India Limited (NSE:KAYNES) as a stock to avoid entirely with its 12.1x 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.

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See our latest analysis for Kaynes Technology India

How Has Kaynes Technology India Performed Recently?

With revenue growth that's superior to most other companies of late, Kaynes Technology India has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Kaynes Technology India's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 223% in total over the last three years. 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 44% per annum as estimated by the analysts watching the company. With the industry only predicted to deliver 33% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Kaynes Technology India's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

We've established that Kaynes Technology India maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Kaynes Technology India, and understanding should be part of your investment process.

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.