Sterlite Technologies Limited (NSE:STLTECH) Stock Rockets 51% But Many Are Still Ignoring The Company

Sterlite Technologies Limited (NSE:STLTECH) shares have had a really impressive month, gaining 51% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

Although its price has surged higher, Sterlite Technologies may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Communications industry in India have P/S ratios greater than 3.2x and even P/S higher than 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Sterlite Technologies

What Does Sterlite Technologies' P/S Mean For Shareholders?

Sterlite Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Sterlite Technologies will help you uncover what's on the horizon.

How Is Sterlite Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, Sterlite Technologies would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 27% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 14% each year during the coming three years according to the two analysts following the company. With the industry predicted to deliver 14% growth per annum, the company is positioned for a comparable revenue result.

With this information, we find it odd that Sterlite Technologies is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Sterlite Technologies' stock price has surged recently, but its but its P/S still remains modest. 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 seen that Sterlite Technologies currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Sterlite Technologies you should be aware of.

If you're unsure about the strength of Sterlite Technologies' 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.