What You Can Learn From Sah Polymers Limited's (NSE:SAH) P/S

When close to half the companies in the Packaging industry in India have price-to-sales ratios (or "P/S") below 1.1x, you may consider Sah Polymers Limited (NSE:SAH) as a stock to potentially avoid with its 1.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Sah Polymers

How Has Sah Polymers Performed Recently?

The revenue growth achieved at Sah Polymers over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Sah Polymers' earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Sah Polymers?

The only time you'd be truly comfortable seeing a P/S as high as Sah Polymers' is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. Pleasingly, revenue has also lifted 100% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 15% shows it's noticeably more attractive.

In light of this, it's understandable that Sah Polymers' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does Sah Polymers' P/S Mean For Investors?

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.

It's no surprise that Sah Polymers 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. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Sah Polymers has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Sah Polymers' 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com