The Market Lifts Jaiprakash Power Ventures Limited (NSE:JPPOWER) Shares 26% But It Can Do More

Despite an already strong run, Jaiprakash Power Ventures Limited (NSE:JPPOWER) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 111% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Jaiprakash Power Ventures' price-to-sales (or "P/S") ratio of 2x might still make it look like a strong buy right now compared to the wider Renewable Energy industry in India, where around half of the companies have P/S ratios above 4.5x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jaiprakash Power Ventures

What Does Jaiprakash Power Ventures' P/S Mean For Shareholders?

For example, consider that Jaiprakash Power Ventures' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Jaiprakash Power Ventures' Revenue Growth Trending?

Jaiprakash Power Ventures' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than 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 6.2%. Still, the latest three year period has seen an excellent 85% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

In light of this, it's peculiar that Jaiprakash Power Ventures' P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Jaiprakash Power Ventures' P/S

Even after such a strong price move, Jaiprakash Power Ventures' P/S still trails the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see Jaiprakash Power Ventures 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 strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

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.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.