Schneider Electric Infrastructure Limited (NSE:SCHNEIDER) Investors Are Less Pessimistic Than Expected

When you see that almost half of the companies in the Electrical industry in India have price-to-sales ratios (or "P/S") below 3.6x, Schneider Electric Infrastructure Limited (NSE:SCHNEIDER) looks to be giving off strong sell signals with its 8.1x 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.

View our latest analysis for Schneider Electric Infrastructure

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

With revenue growth that's inferior to most other companies of late, Schneider Electric Infrastructure has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Pleasingly, revenue has also lifted 67% 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 24% as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 35% growth forecast for the broader industry.

In light of this, it's alarming that Schneider Electric Infrastructure's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Schneider Electric Infrastructure's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Schneider Electric Infrastructure, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 1 warning sign for Schneider Electric Infrastructure you should be aware of.

If these risks are making you reconsider your opinion on Schneider Electric Infrastructure, 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.