Risks Still Elevated At These Prices As Anik Industries Limited (NSE:ANIKINDS) Shares Dive 26%

To the annoyance of some shareholders, Anik Industries Limited (NSE:ANIKINDS) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 49% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Anik Industries' P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Trade Distributors industry in India is also close to 1.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Anik Industries

How Has Anik Industries Performed Recently?

With revenue growth that's exceedingly strong of late, Anik Industries has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Anik Industries 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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What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Anik Industries would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 86%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 8.7% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.1% shows it's an unpleasant look.

With this information, we find it concerning that Anik Industries is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Anik Industries' P/S

With its share price dropping off a cliff, the P/S for Anik Industries looks to be in line with the rest of the Trade Distributors 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.

The fact that Anik Industries currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Anik Industries, and understanding these should be part of your investment process.

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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.