Why Investors Shouldn't Be Surprised By Go Digit General Insurance Limited's (NSE:GODIGIT) P/S

When close to half the companies in the Insurance industry in India have price-to-sales ratios (or "P/S") below 1.4x, you may consider Go Digit General Insurance Limited (NSE:GODIGIT) as a stock to avoid entirely with its 3.9x 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.

View our latest analysis for Go Digit General Insurance

What Does Go Digit General Insurance's Recent Performance Look Like?

Go Digit General Insurance certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Go Digit General Insurance's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 36%. Pleasingly, revenue has also lifted 232% in aggregate from three years ago, thanks to the last 12 months of growth. 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 18% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 2.8%, which is noticeably less attractive.

In light of this, it's understandable that Go Digit General Insurance'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.

What We Can Learn From Go Digit General Insurance's P/S?

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 Go Digit General Insurance maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Insurance industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

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 Go Digit General Insurance with six simple checks.

If these risks are making you reconsider your opinion on Go Digit General Insurance, 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.