The Price Is Right For Multi Commodity Exchange of India Limited (NSE:MCX)

Multi Commodity Exchange of India Limited's (NSE:MCX) price-to-sales (or "P/S") ratio of 28.3x 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 6.5x and even P/S below 2x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

We check all companies for important risks. See what we found for Multi Commodity Exchange of India in our free report.

View our latest analysis for Multi Commodity Exchange of India

How Multi Commodity Exchange of India Has Been Performing

With revenue growth that's inferior to most other companies of late, Multi Commodity Exchange of India has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Multi Commodity Exchange of India will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Multi Commodity Exchange of India?

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.

Retrospectively, the last year delivered an exceptional 52% gain to the company's top line. Pleasingly, revenue has also lifted 157% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 14% each year, which is noticeably less attractive.

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.

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

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.

Our look into Multi Commodity Exchange of India shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Multi Commodity Exchange of India with six simple checks will allow you to discover any risks that could be an issue.

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.