TechPrecision Corporation's (NASDAQ:TPCS) Price In Tune With Revenues
When close to half the companies in the Machinery industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, you may consider TechPrecision Corporation (NASDAQ:TPCS) as a stock to potentially avoid with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for TechPrecision
What Does TechPrecision's Recent Performance Look Like?
Revenue has risen firmly for TechPrecision recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Although there are no analyst estimates available for TechPrecision, 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 High P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as high as TechPrecision's is when the company's growth is on track to outshine the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 112% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
When compared to the industry's one-year growth forecast of 3.5%, the most recent medium-term revenue trajectory is noticeably more alluring
With this information, we can see why TechPrecision is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.
What We Can Learn From TechPrecision's P/S?
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that TechPrecision maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
Plus, you should also learn about these 3 warning signs we've spotted with TechPrecision (including 2 which are potentially serious).
If you're unsure about the strength of TechPrecision's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
