CG Power and Industrial Solutions Limited (NSE:CGPOWER) Not Lagging Industry On Growth Or Pricing

CG Power and Industrial Solutions Limited's (NSE:CGPOWER) price-to-sales (or "P/S") ratio of 12.1x may look like a poor investment opportunity when you consider close to half the companies in the Electrical industry in India have P/S ratios below 3.6x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for CG Power and Industrial Solutions

What Does CG Power and Industrial Solutions' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, CG Power and Industrial Solutions has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is CG Power and Industrial Solutions' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as CG Power and Industrial Solutions' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. Pleasingly, revenue has also lifted 130% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 18% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why CG Power and Industrial Solutions' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From CG Power and Industrial Solutions' 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.

We've established that CG Power and Industrial Solutions maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for CG Power and Industrial Solutions with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.