Some Confidence Is Lacking In S H Kelkar and Company Limited's (NSE:SHK) P/S

With a median price-to-sales (or "P/S") ratio of close to 1.4x in the Chemicals industry in India, you could be forgiven for feeling indifferent about S H Kelkar and Company Limited's (NSE:SHK) P/S ratio of 1.1x. 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.

View our latest analysis for S H Kelkar

What Does S H Kelkar's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, S H Kelkar has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is S H Kelkar's Revenue Growth Trending?

In order to justify its P/S ratio, S H Kelkar would need to produce growth that's similar to 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 42% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 6.4% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 14%, which is noticeably more attractive.

With this in mind, we find it intriguing that S H Kelkar's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On S H Kelkar's P/S

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.

When you consider that S H Kelkar's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 4 warning signs for S H Kelkar (2 are potentially serious!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.