Getting In Cheap On United Breweries Limited (NSE:UBL) Is Unlikely

With a price-to-sales (or "P/S") ratio of 5.1x United Breweries Limited (NSE:UBL) may be sending bearish signals at the moment, given that almost half of all Beverage companies in India have P/S ratios under 4x and even P/S lower than 1.3x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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View our latest analysis for United Breweries

How Has United Breweries Performed Recently?

With revenue growth that's inferior to most other companies of late, United Breweries has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Revenue Growth Forecasted For United Breweries?

In order to justify its P/S ratio, United Breweries would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 30% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 11% per year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 9.5% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's curious that United Breweries' P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Bottom Line On United Breweries' P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given United Breweries' future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 1 warning sign for United Breweries that we have uncovered.

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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.