Johnson Controls-Hitachi Air Conditioning India Limited (NSE:JCHAC) Investors Are Less Pessimistic Than Expected

With a median price-to-sales (or "P/S") ratio of close to 1.9x in the Consumer Durables industry in India, you could be forgiven for feeling indifferent about Johnson Controls-Hitachi Air Conditioning India Limited's (NSE:JCHAC) P/S ratio, which comes in at about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Johnson Controls-Hitachi Air Conditioning India

What Does Johnson Controls-Hitachi Air Conditioning India's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Johnson Controls-Hitachi Air Conditioning India has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is Johnson Controls-Hitachi Air Conditioning India's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Johnson Controls-Hitachi Air Conditioning India's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 53%. Revenue has also lifted 27% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the one analyst following the company. With the industry predicted to deliver 32% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Johnson Controls-Hitachi Air Conditioning India's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Johnson Controls-Hitachi Air Conditioning India's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Johnson Controls-Hitachi Air Conditioning India's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Johnson Controls-Hitachi Air Conditioning India that you should be aware of.

If these risks are making you reconsider your opinion on Johnson Controls-Hitachi Air Conditioning 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.