Raymond Lifestyle Limited (NSE:RAYMONDLSL) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

The Raymond Lifestyle Limited (NSE:RAYMONDLSL) share price has done very well over the last month, posting an excellent gain of 28%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Raymond Lifestyle's P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Luxury industry in India is also close to 1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Raymond Lifestyle

What Does Raymond Lifestyle's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Raymond Lifestyle has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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 not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Raymond Lifestyle.

How Is Raymond Lifestyle's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Raymond Lifestyle's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 11% over the next year. That's shaping up to be similar to the 10% growth forecast for the broader industry.

In light of this, it's understandable that Raymond Lifestyle's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Raymond Lifestyle's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

A Raymond Lifestyle's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Luxury industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Raymond Lifestyle that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.