Further Upside For Jaiprakash Power Ventures Limited (NSE:JPPOWER) Shares Could Introduce Price Risks After 31% Bounce

Jaiprakash Power Ventures Limited (NSE:JPPOWER) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. The last month tops off a massive increase of 241% in the last year.

Even after such a large jump in price, Jaiprakash Power Ventures may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Renewable Energy industry in India have P/S ratios greater than 4.1x and even P/S higher than 7x 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 so limited.

Check out our latest analysis for Jaiprakash Power Ventures

What Does Jaiprakash Power Ventures' Recent Performance Look Like?

Revenue has risen firmly for Jaiprakash Power Ventures recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Jaiprakash Power Ventures, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Jaiprakash Power Ventures?

The only time you'd be truly comfortable seeing a P/S as depressed as Jaiprakash Power Ventures' is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. 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 17% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Jaiprakash Power Ventures 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.

The Key Takeaway

Even after such a strong price move, Jaiprakash Power Ventures' P/S still trails the rest of the industry. 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.

Our examination of Jaiprakash Power Ventures revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jaiprakash Power Ventures that you need to be mindful of.

If you're unsure about the strength of Jaiprakash Power Ventures' 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.