Mangalore Refinery and Petrochemicals Limited's (NSE:MRPL) Prospects Need A Boost To Lift Shares

Mangalore Refinery and Petrochemicals Limited's (NSE:MRPL) price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Oil and Gas industry in India, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Mangalore Refinery and Petrochemicals

How Mangalore Refinery and Petrochemicals Has Been Performing

Mangalore Refinery and Petrochemicals hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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How Is Mangalore Refinery and Petrochemicals' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Mangalore Refinery and Petrochemicals' is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.1%. The last three years don't look nice either as the company has shrunk revenue by 2.2% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 5.6% during the coming year according to the two analysts following the company. With the industry predicted to deliver 2.9% growth, that's a disappointing outcome.

In light of this, it's understandable that Mangalore Refinery and Petrochemicals' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Mangalore Refinery and Petrochemicals' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you take the next step, you should know about the 1 warning sign for Mangalore Refinery and Petrochemicals that we have uncovered.

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.