Revenues Tell The Story For Raghav Productivity Enhancers Limited (NSE:RPEL)

When you see that almost half of the companies in the Chemicals industry in India have price-to-sales ratios (or "P/S") below 1.5x, Raghav Productivity Enhancers Limited (NSE:RPEL) looks to be giving off strong sell signals with its 15.4x 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.

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How Raghav Productivity Enhancers Has Been Performing

Recent times have been quite advantageous for Raghav Productivity Enhancers as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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How Is Raghav Productivity Enhancers' Revenue Growth Trending?

In order to justify its P/S ratio, Raghav Productivity Enhancers would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. The strong recent performance means it was also able to grow revenue by 89% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Raghav Productivity Enhancers is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Raghav Productivity Enhancers' P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Raghav Productivity Enhancers can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

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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.