Indo Rama Synthetics (India) Limited's (NSE:INDORAMA) Shares Not Telling The Full Story

When you see that almost half of the companies in the Luxury industry in India have price-to-sales ratios (or "P/S") above 1x, Indo Rama Synthetics (India) Limited (NSE:INDORAMA) looks to be giving off some buy signals with its 0.3x 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 limited.

Check out our latest analysis for Indo Rama Synthetics (India)

How Indo Rama Synthetics (India) Has Been Performing

For instance, Indo Rama Synthetics (India)'s receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Indo Rama Synthetics (India), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Indo Rama Synthetics (India)'s Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Indo Rama Synthetics (India)'s 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 5.2%. Even so, admirably revenue has lifted 90% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

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

In light of this, it's peculiar that Indo Rama Synthetics (India)'s P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Indo Rama Synthetics (India)'s P/S

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.

We're very surprised to see Indo Rama Synthetics (India) currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Indo Rama Synthetics (India) that you need to be mindful of.

If these risks are making you reconsider your opinion on Indo Rama Synthetics (India), 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com