One97 Communications Limited (NSE:PAYTM) Held Back By Insufficient Growth Even After Shares Climb 26%

One97 Communications Limited (NSE:PAYTM) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. But the last month did very little to improve the 52% share price decline over the last year.

Although its price has surged higher, One97 Communications may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2.7x, considering almost half of all companies in the Diversified Financial industry in India have P/S ratios greater than 9.8x and even P/S higher than 19x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for One97 Communications

What Does One97 Communications' P/S Mean For Shareholders?

Recent times haven't been great for One97 Communications as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think One97 Communications' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as One97 Communications' is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. Pleasingly, revenue has also lifted 256% 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 7.4% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 11% per annum, which is noticeably more attractive.

With this information, we can see why One97 Communications is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From One97 Communications' P/S?

One97 Communications' recent share price jump still sees fails to bring its P/S alongside the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that One97 Communications maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for One97 Communications with six simple checks on some of these key factors.

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.