Investors Still Waiting For A Pull Back In Radico Khaitan Limited (NSE:RADICO)

When you see that almost half of the companies in the Beverage industry in India have price-to-sales ratios (or "P/S") below 2.9x, Radico Khaitan Limited (NSE:RADICO) looks to be giving off strong sell signals with its 7.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for Radico Khaitan

What Does Radico Khaitan's Recent Performance Look Like?

Radico Khaitan certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Radico Khaitan will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Radico Khaitan?

In order to justify its P/S ratio, Radico Khaitan would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The latest three year period has also seen an excellent 81% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 17% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 13% each year growth forecast for the broader industry.

In light of this, it's understandable that Radico Khaitan's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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.

We've established that Radico Khaitan maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Beverage industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Radico Khaitan with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.