Not Many Are Piling Into Shalimar Paints Limited (NSE:SHALPAINTS) Just Yet

There wouldn't be many who think Shalimar Paints Limited's (NSE:SHALPAINTS) price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S for the Chemicals industry in India is similar at about 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Shalimar Paints

How Shalimar Paints Has Been Performing

The recent revenue growth at Shalimar Paints would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Shalimar Paints will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Shalimar Paints' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Shalimar Paints' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. The latest three year period has also seen an excellent 55% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Shalimar Paints is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

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.

To our surprise, Shalimar Paints 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. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Shalimar Paints is showing 2 warning signs in our investment analysis, you should know about.

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.