Kernex Microsystems (India) Limited (NSE:KERNEX) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

Despite an already strong run, Kernex Microsystems (India) Limited (NSE:KERNEX) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 139% in the last year.

Following the firm bounce in price, given around half the companies in India's Electronic industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider Kernex Microsystems (India) as a stock to avoid entirely with its 26.6x 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 Kernex Microsystems (India)

What Does Kernex Microsystems (India)'s P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Kernex Microsystems (India) has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability 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 Kernex Microsystems (India)'s earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Kernex Microsystems (India)?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 44%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Kernex Microsystems (India)'s P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Kernex Microsystems (India)'s P/S?

The strong share price surge has lead to Kernex Microsystems (India)'s P/S soaring as well. 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 Kernex Microsystems (India) revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Kernex Microsystems (India) (of which 2 can't be ignored!) you should know about.

If you're unsure about the strength of Kernex Microsystems (India)'s 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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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.