What You Can Learn From Linde India Limited's (NSE:LINDEINDIA) P/S

When close to half the companies in the Chemicals industry in India have price-to-sales ratios (or "P/S") below 1.7x, you may consider Linde India Limited (NSE:LINDEINDIA) as a stock to avoid entirely with its 20.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Linde India

How Has Linde India Performed Recently?

Linde India could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Linde India's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Linde India's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Linde India's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.9%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 35% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 38% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this information, we can see why Linde India is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

As we suspected, our examination of Linde India's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Linde India with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Linde India's 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.