The Ugar Sugar Works Limited's (NSE:UGARSUGAR) Revenues Are Not Doing Enough For Some Investors

With a price-to-sales (or "P/S") ratio of 0.4x The Ugar Sugar Works Limited (NSE:UGARSUGAR) may be sending bullish signals at the moment, given that almost half of all the Food companies in India have P/S ratios greater than 1x and even P/S higher than 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 limited.

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See our latest analysis for Ugar Sugar Works

How Ugar Sugar Works Has Been Performing

Revenue has risen at a steady rate over the last year for Ugar Sugar Works, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Ugar Sugar Works' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Ugar Sugar Works?

In order to justify its P/S ratio, Ugar Sugar Works would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 7.1% gain to the company's revenues. Revenue has also lifted 9.6% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Ugar Sugar Works' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Ugar Sugar Works' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Ugar Sugar Works 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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Ugar Sugar Works (2 can't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Ugar Sugar Works, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.