Bannari Amman Spinning Mills Ltd's (NSE:BASML) Shares Lagging The Industry But So Is The Business

You may think that with a price-to-sales (or "P/S") ratio of 0.2x Bannari Amman Spinning Mills Ltd (NSE:BASML) is a stock worth checking out, seeing as almost half of all the Luxury companies in India have P/S ratios greater than 0.8x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Bannari Amman Spinning Mills

How Has Bannari Amman Spinning Mills Performed Recently?

As an illustration, revenue has deteriorated at Bannari Amman Spinning Mills over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Bannari Amman Spinning Mills will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

Is There Any Revenue Growth Forecasted For Bannari Amman Spinning Mills?

The only time you'd be truly comfortable seeing a P/S as low as Bannari Amman Spinning Mills' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. Still, the latest three year period has seen an excellent 31% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Bannari Amman Spinning Mills is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Bannari Amman Spinning Mills' P/S Mean For Investors?

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.

Our examination of Bannari Amman Spinning Mills confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It is also worth noting that we have found 3 warning signs for Bannari Amman Spinning Mills (2 are a bit concerning!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Bannari Amman Spinning Mills, 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.