Market Might Still Lack Some Conviction On Bharat Road Network Limited (NSE:BRNL) Even After 25% Share Price Boost

Despite an already strong run, Bharat Road Network Limited (NSE:BRNL) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 145% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Bharat Road Network may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.8x, since almost half of all companies in the Infrastructure industry in India have P/S ratios greater than 4.4x and even P/S higher than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Bharat Road Network

What Does Bharat Road Network's P/S Mean For Shareholders?

The revenue growth achieved at Bharat Road Network over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Bharat Road Network will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Bharat Road Network will help you shine a light on its historical performance.

How Is Bharat Road Network's Revenue Growth Trending?

In order to justify its P/S ratio, Bharat Road Network would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. The latest three year period has also seen an excellent 95% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 20% shows it's noticeably more attractive.

With this information, we find it odd that Bharat Road Network is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Bharat Road Network's P/S Mean For Investors?

Shares in Bharat Road Network have risen appreciably however, its P/S is still subdued. 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.

We're very surprised to see Bharat Road Network currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It is also worth noting that we have found 3 warning signs for Bharat Road Network (2 are potentially serious!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Bharat Road Network, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.