What You Can Learn From JBM Auto Limited's (NSE:JBMA) P/S

When close to half the companies in the Auto Components industry in India have price-to-sales ratios (or "P/S") below 1.7x, you may consider JBM Auto Limited (NSE:JBMA) as a stock to avoid entirely with its 4.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for JBM Auto

How JBM Auto Has Been Performing

JBM Auto certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JBM Auto.

How Is JBM Auto's Revenue Growth Trending?

In order to justify its P/S ratio, JBM Auto would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 38% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 10%, which is noticeably less attractive.

In light of this, it's understandable that JBM Auto's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From JBM Auto's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of JBM Auto's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for JBM Auto that you should be aware of.

If these risks are making you reconsider your opinion on JBM Auto, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.