What PG Electroplast Limited's (NSE:PGEL) 40% Share Price Gain Is Not Telling You

PG Electroplast Limited (NSE:PGEL) shares have continued their recent momentum with a 40% gain in the last month alone. The last month tops off a massive increase of 233% in the last year.

After such a large jump in price, given close to half the companies operating in India's Electronic industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider PG Electroplast as a stock to potentially avoid with its 4.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for PG Electroplast

What Does PG Electroplast's P/S Mean For Shareholders?

Recent times haven't been great for PG Electroplast 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. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think PG Electroplast'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 PG Electroplast?

PG Electroplast's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 47%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 16% as estimated by the three analysts watching the company. With the industry predicted to deliver 42% growth, the company is positioned for a weaker revenue result.

In light of this, it's alarming that PG Electroplast's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does PG Electroplast's P/S Mean For Investors?

PG Electroplast's P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've concluded that PG Electroplast currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 1 warning sign for PG Electroplast that you need to take into consideration.

If you're unsure about the strength of PG Electroplast'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.