Investors Aren't Buying The Bombay Burmah Trading Corporation, Limited's (NSE:BBTC) Revenues

When close to half the companies operating in the Food industry in India have price-to-sales ratios (or "P/S") above 1.1x, you may consider The Bombay Burmah Trading Corporation, Limited (NSE:BBTC) as an attractive investment with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Bombay Burmah Trading Corporation

What Does Bombay Burmah Trading Corporation's P/S Mean For Shareholders?

Revenue has risen firmly for Bombay Burmah Trading Corporation recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on Bombay Burmah Trading Corporation will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Bombay Burmah Trading Corporation's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Bombay Burmah Trading Corporation?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Bombay Burmah Trading Corporation's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.6% last year. This was backed up an excellent period prior to see revenue up by 31% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 12% shows it's noticeably less attractive.

With this information, we can see why Bombay Burmah Trading Corporation is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

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.

Our examination of Bombay Burmah Trading Corporation confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Having said that, be aware Bombay Burmah Trading Corporation is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

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.