Multi Commodity Exchange of India Limited (NSE:MCX) Not Flying Under The Radar

Multi Commodity Exchange of India Limited's (NSE:MCX) price-to-sales (or "P/S") ratio of 25.3x might make it look like a strong sell right now compared to the Capital Markets industry in India, where around half of the companies have P/S ratios below 6.6x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Multi Commodity Exchange of India

What Does Multi Commodity Exchange of India's P/S Mean For Shareholders?

Recent times haven't been great for Multi Commodity Exchange of India as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Multi Commodity Exchange of India's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as Multi Commodity Exchange of India's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The latest three year period has also seen an excellent 54% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 19% per annum during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 15% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Multi Commodity Exchange of India's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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.

We've established that Multi Commodity Exchange of India maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Capital Markets industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Multi Commodity Exchange of India that you should be aware of.

If these risks are making you reconsider your opinion on Multi Commodity Exchange of 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com