Even With A 27% Surge, Cautious Investors Are Not Rewarding Religare Enterprises Limited's (NSE:RELIGARE) Performance Completely

Religare Enterprises Limited (NSE:RELIGARE) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 37%.

Even after such a large jump in price, there still wouldn't be many who think Religare Enterprises' price-to-sales (or "P/S") ratio of 1.4x is worth a mention when it essentially matches the median P/S in India's Insurance industry. 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.

See our latest analysis for Religare Enterprises

What Does Religare Enterprises' Recent Performance Look Like?

The revenue growth achieved at Religare Enterprises over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Religare Enterprises will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Religare Enterprises will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Religare Enterprises?

Religare Enterprises' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The latest three year period has also seen an excellent 144% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.0% shows it's noticeably more attractive.

In light of this, it's curious that Religare Enterprises' P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Religare Enterprises' P/S

Religare Enterprises appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 Religare Enterprises currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Religare Enterprises you should know about.

If these risks are making you reconsider your opinion on Religare Enterprises, 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.