Ramky Infrastructure Limited's (NSE:RAMKY) Shares Not Telling The Full Story

With a median price-to-sales (or "P/S") ratio of close to 2.1x in the Construction industry in India, you could be forgiven for feeling indifferent about Ramky Infrastructure Limited's (NSE:RAMKY) P/S ratio of 1.8x. 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.

View our latest analysis for Ramky Infrastructure

What Does Ramky Infrastructure's P/S Mean For Shareholders?

Revenue has risen firmly for Ramky Infrastructure recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ramky Infrastructure will help you shine a light on its historical performance.

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

Ramky Infrastructure's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 101% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

When compared to the industry's one-year growth forecast of 15%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Ramky Infrastructure is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To our surprise, Ramky Infrastructure revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ramky Infrastructure that you should be aware of.

If these risks are making you reconsider your opinion on Ramky Infrastructure, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.