Why Investors Shouldn't Be Surprised By Niva Bupa Health Insurance Company Limited's (NSE:NIVABUPA) P/S

When you see that almost half of the companies in the Insurance industry in India have price-to-sales ratios (or "P/S") below 1.5x, Niva Bupa Health Insurance Company Limited (NSE:NIVABUPA) looks to be giving off some sell signals with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for Niva Bupa Health Insurance

What Does Niva Bupa Health Insurance's P/S Mean For Shareholders?

Recent times have been advantageous for Niva Bupa Health Insurance as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Niva Bupa Health Insurance.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Niva Bupa Health Insurance's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 32%. Pleasingly, revenue has also lifted 172% 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.

Turning to the outlook, the next year should generate growth of 31% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 8.7% growth forecast for the broader industry.

In light of this, it's understandable that Niva Bupa Health Insurance's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Niva Bupa Health Insurance's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Niva Bupa Health 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. It's hard to see the share price falling strongly in the near future under these circumstances.

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 Niva Bupa Health Insurance with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.