Fiberweb (India) Limited's (NSE:FIBERWEB) Share Price Not Quite Adding Up

When you see that almost half of the companies in the Luxury industry in India have price-to-sales ratios (or "P/S") below 1x, Fiberweb (India) Limited (NSE:FIBERWEB) looks to be giving off some sell signals with its 1.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Fiberweb (India)

How Fiberweb (India) Has Been Performing

Fiberweb (India) certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

Fiberweb (India)'s P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 36% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 12% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

In light of this, it's alarming that Fiberweb (India)'s P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Fiberweb (India)'s P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Fiberweb (India) currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Fiberweb (India) you should know about.

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.