Dixon Technologies (India) Limited's (NSE:DIXON) Share Price Matching Investor Opinion

Dixon Technologies (India) Limited's (NSE:DIXON) price-to-sales (or "P/S") ratio of 2.6x may not look like an appealing investment opportunity when you consider close to half the companies in the Consumer Durables industry in India have P/S ratios below 2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Dixon Technologies (India)

How Has Dixon Technologies (India) Performed Recently?

Dixon Technologies (India)'s revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Dixon Technologies (India) will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Dixon Technologies (India)?

In order to justify its P/S ratio, Dixon Technologies (India) would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.4% last year. The latest three year period has also seen an excellent 242% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 35% per annum during the coming three years according to the analysts following the company. With the industry only predicted to deliver 25% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Dixon Technologies (India) is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Dixon Technologies (India)'s 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.

As we suspected, our examination of Dixon Technologies (India)'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. 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. Take a look at our free balance sheet analysis for Dixon Technologies (India) with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.