The Market Doesn't Like What It Sees From Laxmi Cotspin Limited's (NSE:LAXMICOT) Revenues Yet As Shares Tumble 28%

Unfortunately for some shareholders, the Laxmi Cotspin Limited (NSE:LAXMICOT) share price has dived 28% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

Since its price has dipped substantially, it would be understandable if you think Laxmi Cotspin is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.1x, considering almost half the companies in India's Luxury industry have P/S ratios above 0.9x. 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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View our latest analysis for Laxmi Cotspin

What Does Laxmi Cotspin's P/S Mean For Shareholders?

Revenue has risen firmly for Laxmi Cotspin 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 Laxmi Cotspin will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Laxmi Cotspin's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 1.0% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Laxmi Cotspin is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Laxmi Cotspin's P/S

Laxmi Cotspin's recently weak share price has pulled its P/S back below other Luxury companies. 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.

Our examination of Laxmi Cotspin confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Laxmi Cotspin (2 are significant) 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.