There's Reason For Concern Over Lloyds Metals and Energy Limited's (NSE:LLOYDSME) Price

When close to half the companies in the Metals and Mining industry in India have price-to-sales ratios (or "P/S") below 1.1x, you may consider Lloyds Metals and Energy Limited (NSE:LLOYDSME) as a stock to avoid entirely with its 6.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Lloyds Metals and Energy

What Does Lloyds Metals and Energy's Recent Performance Look Like?

Lloyds Metals and Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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 Lloyds Metals and Energy's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

Lloyds Metals and Energy's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 144% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 6.4% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 6.3%, which is not materially different.

In light of this, it's curious that Lloyds Metals and Energy's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Lloyds Metals and Energy's 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.

Analysts are forecasting Lloyds Metals and Energy's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. A positive change is needed in order to justify the current price-to-sales ratio.

You need to take note of risks, for example - Lloyds Metals and Energy has 2 warning signs (and 1 which is concerning) we think you should know about.

If you're unsure about the strength of Lloyds Metals and Energy'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.