Revenues Not Telling The Story For Westlife Foodworld Limited (NSE:WESTLIFE)

There wouldn't be many who think Westlife Foodworld Limited's (NSE:WESTLIFE) price-to-sales (or "P/S") ratio of 4.5x is worth a mention when the median P/S for the Hospitality industry in India is similar at about 4.3x. 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 Westlife Foodworld

What Does Westlife Foodworld's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Westlife Foodworld has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For Westlife Foodworld?

In order to justify its P/S ratio, Westlife Foodworld would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 66% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 32% per annum, which is noticeably more attractive.

In light of this, it's curious that Westlife Foodworld's P/S sits in line with the majority of other companies. 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.

What We Can Learn From Westlife Foodworld's P/S?

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.

When you consider that Westlife Foodworld's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Westlife Foodworld (of which 1 is a bit unpleasant!) you should know about.

If these risks are making you reconsider your opinion on Westlife Foodworld, 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.