Shareholders Should Be Pleased With Aditya Birla Real Estate Limited's (NSE:ABREL) Price

Aditya Birla Real Estate Limited's (NSE:ABREL) price-to-sales (or "P/S") ratio of 4.5x may look like a poor investment opportunity when you consider close to half the companies in the Forestry industry in India have P/S ratios below 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

We've discovered 3 warning signs about Aditya Birla Real Estate. View them for free.

Check out our latest analysis for Aditya Birla Real Estate

How Aditya Birla Real Estate Has Been Performing

Recent times haven't been great for Aditya Birla Real Estate as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aditya Birla Real Estate.

Is There Enough Revenue Growth Forecasted For Aditya Birla Real Estate?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Aditya Birla Real Estate's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.9% last year. The latest three year period has also seen an excellent 33% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 80% as estimated by the only analyst watching the company. With the industry only predicted to deliver 43%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Aditya Birla Real Estate's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Aditya Birla Real Estate's P/S Mean For Investors?

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.

Our look into Aditya Birla Real Estate shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 3 warning signs for Aditya Birla Real Estate (1 doesn't sit too well with us!) that we have uncovered.

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.