Take Care Before Diving Into The Deep End On Orient Paper & Industries Limited (NSE:ORIENTPPR)

There wouldn't be many who think Orient Paper & Industries Limited's (NSE:ORIENTPPR) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Forestry industry in India is similar at about 0.9x. 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.

See our latest analysis for Orient Paper & Industries

How Has Orient Paper & Industries Performed Recently?

We'd have to say that with no tangible growth over the last year, Orient Paper & Industries' revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Orient Paper & Industries' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Orient Paper & Industries?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Orient Paper & Industries' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period has seen an excellent 77% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 8.0% shows it's noticeably more attractive.

In light of this, it's curious that Orient Paper & Industries' P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

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.

To our surprise, Orient Paper & Industries revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 2 warning signs for Orient Paper & Industries that you need to take into consideration.

If these risks are making you reconsider your opinion on Orient Paper & Industries, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.