Revenues Tell The Story For Khaitan Chemicals and Fertilizers Limited (NSE:KHAICHEM)

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 Khaitan Chemicals and Fertilizers Limited's (NSE:KHAICHEM) P/S ratio of 1.1x. 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 Khaitan Chemicals and Fertilizers

What Does Khaitan Chemicals and Fertilizers' Recent Performance Look Like?

As an illustration, revenue has deteriorated at Khaitan Chemicals and Fertilizers over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Khaitan Chemicals and Fertilizers, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Khaitan Chemicals and Fertilizers' Revenue Growth Trending?

In order to justify its P/S ratio, Khaitan Chemicals and Fertilizers would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 40% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we can see why Khaitan Chemicals and Fertilizers is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What We Can Learn From Khaitan Chemicals and Fertilizers' 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.

It appears to us that Khaitan Chemicals and Fertilizers maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You should always think about risks. Case in point, we've spotted 4 warning signs for Khaitan Chemicals and Fertilizers you should be aware of, and 1 of them shouldn't be ignored.

If you're unsure about the strength of Khaitan Chemicals and Fertilizers' 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.