Stock Analysis

Radico Khaitan Limited's (NSE:RADICO) Price In Tune With Revenues

Source: Shutterstock

When close to half the companies in the Beverage industry in India have price-to-sales ratios (or "P/S") below 2.5x, you may consider Radico Khaitan Limited (NSE:RADICO) as a stock to avoid entirely with its 5.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Radico Khaitan

NSEI:RADICO Price to Sales Ratio vs Industry April 10th 2024

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. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Radico Khaitan.

Is There Enough Revenue Growth Forecasted For Radico Khaitan?

The only time you'd be truly comfortable seeing a P/S as steep as Radico Khaitan's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 68% in total over the last three years. 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 25% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.

In light of this, it's understandable that Radico Khaitan's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Radico Khaitan's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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 Radico Khaitan with six simple checks will allow you to discover any risks that could be an issue.

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).

Valuation is complex, but we're helping make it simple.

Find out whether Radico Khaitan is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at)

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.