RattanIndia Enterprises Limited (NSE:RTNINDIA) Stock Rockets 44% But Many Are Still Ignoring The Company

RattanIndia Enterprises Limited (NSE:RTNINDIA) shareholders have had their patience rewarded with a 44% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 21% in the last twelve months.

Although its price has surged higher, RattanIndia Enterprises may still be sending bullish signals at the moment with its price-to-sales (or “P/S”) ratio of 1.2x, since almost half of all companies in the Multiline Retail industry in India have P/S ratios greater than 1.9x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it’s justified.

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See our latest analysis for RattanIndia Enterprises

What Does RattanIndia Enterprises’ P/S Mean For Shareholders?

Revenue has risen firmly for RattanIndia Enterprises 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. Those who are bullish on RattanIndia Enterprises will be hoping that this isn’t the case, so that they can pick up the stock at a lower valuation.

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How Is RattanIndia Enterprises’ Revenue Growth Trending?

The only time you’d be truly comfortable seeing a P/S as low as RattanIndia Enterprises’ is when the company’s growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry’s one-year growth forecast of 8.3% shows it’s noticeably more attractive.

With this in mind, we find it intriguing that RattanIndia Enterprises’ P/S isn’t as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From RattanIndia Enterprises’ P/S?

RattanIndia Enterprises’ stock price has surged recently, but its but its P/S still remains modest. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We’re very surprised to see RattanIndia Enterprises 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.

Before you settle on your opinion, we’ve discovered 2 warning signs for RattanIndia Enterprises that you should be aware of.

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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.