There's Reason For Concern Over ShreeOswal Seeds and Chemicals Limited's (NSE:OSWALSEEDS) Massive 31% Price Jump

ShreeOswal Seeds and Chemicals Limited (NSE:OSWALSEEDS) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 13% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about ShreeOswal Seeds and Chemicals' P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Food industry in India is also close to 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for ShreeOswal Seeds and Chemicals

What Does ShreeOswal Seeds and Chemicals' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at ShreeOswal Seeds and Chemicals over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like ShreeOswal Seeds and Chemicals' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.9%. As a result, revenue from three years ago have also fallen 9.0% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

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 in mind, we find it worrying that ShreeOswal Seeds and Chemicals' P/S exceeds that of its industry peers. 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 Final Word

ShreeOswal Seeds and Chemicals appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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 find it unexpected that ShreeOswal Seeds and Chemicals trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 5 warning signs for ShreeOswal Seeds and Chemicals (3 make us uncomfortable!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.