Subdued Growth No Barrier To Panache Digilife Limited (NSE:PANACHE) With Shares Advancing 49%

Panache Digilife Limited (NSE:PANACHE) shares have continued their recent momentum with a 49% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 82% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Panache Digilife's price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S in India's Tech industry is similar at about 1.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Panache Digilife

What Does Panache Digilife's P/S Mean For Shareholders?

For instance, Panache Digilife's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Panache Digilife, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Panache Digilife's Revenue Growth Trending?

In order to justify its P/S ratio, Panache Digilife would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 9.9% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 10% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Panache Digilife's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Panache Digilife's P/S Mean For Investors?

Its shares have lifted substantially and now Panache Digilife's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Panache Digilife revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 5 warning signs for Panache Digilife (3 make us uncomfortable!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.