Risks To Shareholder Returns Are Elevated At These Prices For Jubilant FoodWorks Limited (NSE:JUBLFOOD)

There wouldn't be many who think Jubilant FoodWorks Limited's (NSE:JUBLFOOD) price-to-sales (or "P/S") ratio of 5.9x is worth a mention when the median P/S for the Hospitality industry in India is similar at about 5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Jubilant FoodWorks

What Does Jubilant FoodWorks' P/S Mean For Shareholders?

Jubilant FoodWorks could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Jubilant FoodWorks will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

Jubilant FoodWorks' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 5.7% gain to the company's revenues. Pleasingly, revenue has also lifted 68% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 14% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 26% per annum, which is noticeably more attractive.

With this in mind, we find it intriguing that Jubilant FoodWorks' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Given that Jubilant FoodWorks' 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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You need to take note of risks, for example - Jubilant FoodWorks has 2 warning signs (and 1 which doesn't sit too well with us) we think 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.