Stock Analysis

The Price Is Right For Radico Khaitan Limited (NSE:RADICO)

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When close to half the companies in the Beverage industry in India have price-to-sales ratios (or "P/S") below 2.4x, you may consider Radico Khaitan Limited (NSE:RADICO) as a stock to avoid entirely with its 6.1x 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.

See our latest analysis for Radico Khaitan

NSEI:RADICO Price to Sales Ratio vs Industry December 26th 2023

How Has Radico Khaitan Performed Recently?

Radico Khaitan's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

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.

How Is Radico Khaitan's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Radico Khaitan's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The latest three year period has also seen an excellent 54% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 22% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this information, we can see why Radico Khaitan is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Radico Khaitan that you should be aware of.

If you're unsure about the strength of Radico Khaitan's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

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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.