After Leaping 26% Zen Technologies Limited (NSE:ZENTEC) Shares Are Not Flying Under The Radar

Despite an already strong run, Zen Technologies Limited (NSE:ZENTEC) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 201% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Zen Technologies is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 23.4x, considering almost half the companies in India's Electronic industry have P/S ratios below 2.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Zen Technologies

What Does Zen Technologies' Recent Performance Look Like?

Recent times have been quite advantageous for Zen Technologies as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Zen Technologies' earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Zen Technologies' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 101%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 33% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Zen Technologies is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

The strong share price surge has lead to Zen Technologies' 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 Zen Technologies revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Zen Technologies that you should be aware of.

If you're unsure about the strength of Zen 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com