Take Care Before Diving Into The Deep End On Prism Johnson Limited (NSE:PRSMJOHNSN)

You may think that with a price-to-sales (or "P/S") ratio of 1.1x Prism Johnson Limited (NSE:PRSMJOHNSN) is a stock worth checking out, seeing as almost half of all the Basic Materials companies in India have P/S ratios greater than 1.9x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Prism Johnson

What Does Prism Johnson's Recent Performance Look Like?

Prism Johnson could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Prism Johnson's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Prism Johnson's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. The latest three year period has also seen an excellent 36% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 8.1% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 2.1% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Prism Johnson's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Prism Johnson's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Prism Johnson's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Prism Johnson (including 1 which doesn't sit too well with us).

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.