Market Participants Recognise Olectra Greentech Limited's (NSE:OLECTRA) Revenues

When close to half the companies in the Machinery industry in India have price-to-sales ratios (or "P/S") below 2.8x, you may consider Olectra Greentech Limited (NSE:OLECTRA) as a stock to avoid entirely with its 6.7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Olectra Greentech

How Has Olectra Greentech Performed Recently?

Recent times have been advantageous for Olectra Greentech as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Taking a look back first, we see that the company grew revenue by an impressive 47% last year. The strong recent performance means it was also able to grow revenue by 121% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 60% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Olectra Greentech's 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 Olectra Greentech's P/S?

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.

As we suspected, our examination of Olectra Greentech's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Olectra Greentech with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Olectra Greentech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.