Chemplast Sanmar Limited's (NSE:CHEMPLASTS) Subdued P/S Might Signal An Opportunity

There wouldn't be many who think Chemplast Sanmar Limited's (NSE:CHEMPLASTS) price-to-sales (or "P/S") ratio of 1.7x is worth a mention when the median P/S for the Chemicals industry in India is similar at about 1.4x. 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.

View our latest analysis for Chemplast Sanmar

What Does Chemplast Sanmar's P/S Mean For Shareholders?

Recent times haven't been great for Chemplast Sanmar as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may 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 Chemplast Sanmar.

How Is Chemplast Sanmar's Revenue Growth Trending?

In order to justify its P/S ratio, Chemplast Sanmar would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.6%. Still, lamentably revenue has fallen 22% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 14%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Chemplast Sanmar's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Chemplast Sanmar's 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.

Looking at Chemplast Sanmar's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 1 warning sign for Chemplast Sanmar that you need to take into consideration.

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.