RattanIndia Power Limited (NSE:RTNPOWER) Shares Fly 46% But Investors Aren't Buying For Growth

RattanIndia Power Limited (NSE:RTNPOWER) shares have continued their recent momentum with a 46% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

Although its price has surged higher, RattanIndia Power may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.5x, since almost half of all companies in the Renewable Energy industry in India have P/S ratios greater than 3.9x and even P/S higher than 9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for RattanIndia Power

How Has RattanIndia Power Performed Recently?

For example, consider that RattanIndia Power's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on RattanIndia Power will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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 RattanIndia Power's earnings, revenue and cash flow.

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

In order to justify its P/S ratio, RattanIndia Power would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 2.4% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why RattanIndia Power's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does RattanIndia Power's P/S Mean For Investors?

RattanIndia Power's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

In line with expectations, RattanIndia Power maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 3 warning signs for RattanIndia Power (of which 1 is a bit unpleasant!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.