Getting In Cheap On Adani Enterprises Limited (NSE:ADANIENT) Might Be Difficult

When close to half the companies in the Trade Distributors industry in India have price-to-sales ratios (or "P/S") below 2x, you may consider Adani Enterprises Limited (NSE:ADANIENT) as a stock to potentially avoid with its 3.6x 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.

Check out our latest analysis for Adani Enterprises

How Adani Enterprises Has Been Performing

Adani Enterprises hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Adani Enterprises' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Adani Enterprises' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Adani Enterprises' is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 112% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 31% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 5.2%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Adani Enterprises' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Adani Enterprises' P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Adani Enterprises' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Adani Enterprises is showing 1 warning sign in our investment analysis, 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.