Why Investors Shouldn't Be Surprised By Dynemic Products Limited's (NSE:DYNPRO) P/S

With a median price-to-sales (or "P/S") ratio of close to 1.5x in the Chemicals industry in India, you could be forgiven for feeling indifferent about Dynemic Products Limited's (NSE:DYNPRO) P/S ratio of 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.

View our latest analysis for Dynemic Products

How Dynemic Products Has Been Performing

As an illustration, revenue has deteriorated at Dynemic Products over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Dynemic Products' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.0%. Still, the latest three year period has seen an excellent 43% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 12% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Dynemic Products' P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On Dynemic Products' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we've seen, Dynemic Products' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Dynemic Products (2 can't be ignored) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.