Revenues Not Telling The Story For TVS Electronics Limited (NSE:TVSELECT) After Shares Rise 28%

The TVS Electronics Limited (NSE:TVSELECT) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 29%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about TVS Electronics' P/S ratio of 2.3x, since the median price-to-sales (or "P/S") ratio for the Tech industry in India is also close to 1.9x. 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.

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Check out our latest analysis for TVS Electronics

How TVS Electronics Has Been Performing

The recent revenue growth at TVS Electronics would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction 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 TVS Electronics' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

TVS Electronics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 7.3% gain to the company's revenues. Revenue has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that TVS Electronics is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

TVS Electronics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of TVS Electronics 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. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 2 warning signs for TVS Electronics you should be aware of, and 1 of them doesn't sit too well with us.

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.