GMR Power And Urban Infra Limited's (NSE:GMRP&UI) Popularity With Investors Is Under Threat From Overpricing

There wouldn't be many who think GMR Power And Urban Infra Limited's (NSE:GMRP&UI) price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S for the Construction industry in India is similar at about 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for GMR Power And Urban Infra

How Has GMR Power And Urban Infra Performed Recently?

With revenue growth that's superior to most other companies of late, GMR Power And Urban Infra has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on GMR Power And Urban Infra.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, GMR Power And Urban Infra would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The latest three year period has also seen an excellent 48% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 2.6% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 14%, which is noticeably more attractive.

With this information, we find it interesting that GMR Power And Urban Infra is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does GMR Power And Urban Infra's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at the analysts forecasts of GMR Power And Urban Infra's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 3 warning signs for GMR Power And Urban Infra (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on GMR Power And Urban Infra, 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.