Sentiment Still Eluding Religare Enterprises Limited (NSE:RELIGARE)

There wouldn't be many who think Religare Enterprises Limited's (NSE:RELIGARE) price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S for the Insurance industry in India is similar at about 1.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Religare Enterprises

How Has Religare Enterprises Performed Recently?

Recent times have been quite advantageous for Religare Enterprises as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. 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.

How Is Religare Enterprises' Revenue Growth Trending?

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.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. The latest three year period has also seen an excellent 128% 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 to the industry, which is only predicted to deliver 4.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Religare Enterprises' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Religare Enterprises' P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, Religare Enterprises revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Religare Enterprises (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of Religare Enterprises' 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.