Revenues Tell The Story For Bharat Dynamics Limited (NSE:BDL)

When close to half the companies in the Aerospace & Defense industry in India have price-to-sales ratios (or "P/S") below 12.1x, you may consider Bharat Dynamics Limited (NSE:BDL) as a stock to potentially avoid with its 16.8x 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.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

View our latest analysis for Bharat Dynamics

What Does Bharat Dynamics' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Bharat Dynamics has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Bharat Dynamics' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 50% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 39% as estimated by the nine analysts watching the company. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

With this information, we can see why Bharat Dynamics is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

Our look into Bharat Dynamics shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Bharat Dynamics you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.