ICICI Prudential Life Insurance Company Limited's (NSE:ICICIPRULI) Business Is Trailing The Industry But Its Shares Aren't

There wouldn't be many who think ICICI Prudential Life Insurance Company Limited's (NSE:ICICIPRULI) price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S for the Insurance industry in India is similar at about 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for ICICI Prudential Life Insurance

What Does ICICI Prudential Life Insurance's Recent Performance Look Like?

Recent times have been advantageous for ICICI Prudential Life Insurance as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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 not quite in favour.

Keen to find out how analysts think ICICI Prudential Life 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 P/S?

In order to justify its P/S ratio, ICICI Prudential Life Insurance would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 58% last year. The latest three year period has also seen an excellent 67% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 9.6% each year over the next three years. That's not great when the rest of the industry is expected to grow by 9.9% each year.

With this information, we find it concerning that ICICI Prudential Life Insurance is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our check of ICICI Prudential Life Insurance's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

It is also worth noting that we have found 2 warning signs for ICICI Prudential Life Insurance (1 shouldn't be ignored!) that you need to take into consideration.

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

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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.