Lacklustre Performance Is Driving Indo Rama Synthetics (India) Limited's (NSE:INDORAMA) Low P/S

When close to half the companies operating in the Luxury industry in India have price-to-sales ratios (or "P/S") above 1.1x, you may consider Indo Rama Synthetics (India) Limited (NSE:INDORAMA) as an attractive investment 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 Has Indo Rama Synthetics (India) Performed Recently?

As an illustration, revenue has deteriorated at Indo Rama Synthetics (India) over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

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

Is There Any Revenue Growth Forecasted For Indo Rama Synthetics (India)?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Indo Rama Synthetics (India)'s to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.6%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 166% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why Indo Rama Synthetics (India)'s P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

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 examination of Indo Rama Synthetics (India) 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.

Plus, you should also learn about this 1 warning sign we've spotted with Indo Rama Synthetics (India).

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.