Why Investors Shouldn't Be Surprised By Shaily Engineering Plastics Limited's (NSE:SHAILY) P/S

When close to half the companies in the Machinery industry in India have price-to-sales ratios (or "P/S") below 2.2x, you may consider Shaily Engineering Plastics Limited (NSE:SHAILY) as a stock to avoid entirely with its 10.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Shaily Engineering Plastics

What Does Shaily Engineering Plastics' P/S Mean For Shareholders?

Shaily Engineering Plastics certainly has been doing a good job lately as it's been growing revenue more 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.

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

Is There Enough Revenue Growth Forecasted For Shaily Engineering Plastics?

In order to justify its P/S ratio, Shaily Engineering Plastics would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 41% in total over the last three years. 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 23% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

In light of this, it's understandable that Shaily Engineering Plastics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Shaily Engineering Plastics' P/S Mean For Investors?

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.

Our look into Shaily Engineering Plastics shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Shaily Engineering Plastics with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Shaily Engineering Plastics' 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.