TVS Electronics Limited's (NSE:TVSELECT) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio
TVS Electronics Limited (NSE:TVSELECT) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 21%.
Even after such a large drop in price, you could still be forgiven for feeling indifferent about TVS Electronics' P/S ratio of 1.9x, since the median price-to-sales (or "P/S") ratio for the Tech industry in India is about the same. 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.
Check out our latest analysis for TVS Electronics
How Has TVS Electronics Performed Recently?
TVS Electronics has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Although there are no analyst estimates available for TVS Electronics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is TVS Electronics' Revenue Growth Trending?
TVS Electronics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 9.7% last year. The latest three year period has also seen a 23% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we find it interesting that TVS Electronics is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
What We Can Learn From TVS Electronics' P/S?
With its share price dropping off a cliff, the P/S for TVS Electronics looks to be in line with the rest of the Tech 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.
We've established that TVS Electronics' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.
You need to take note of risks, for example - TVS Electronics has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.