Inox Wind Limited's (NSE:INOXWIND) Price In Tune With Revenues

Inox Wind Limited's (NSE:INOXWIND) price-to-sales (or "P/S") ratio of 9.8x 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 Inox Wind

How Has Inox Wind Performed Recently?

With revenue growth that's superior to most other companies of late, Inox Wind has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Inox Wind's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Inox Wind's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 112%. Pleasingly, revenue has also lifted 209% 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 year should generate growth of 147% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 33% growth forecast for the broader industry.

With this information, we can see why Inox Wind is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Inox Wind's P/S

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 Inox Wind shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Inox Wind is showing 1 warning sign in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.