Sundaram Multi Pap Limited's (NSE:SUNDARAM) Share Price Not Quite Adding Up

It's not a stretch to say that Sundaram Multi Pap Limited's (NSE:SUNDARAM) price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" for companies in the Forestry industry in India, where the median P/S ratio is around 0.7x. 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.

We've discovered 1 warning sign about Sundaram Multi Pap. View them for free.

See our latest analysis for Sundaram Multi Pap

What Does Sundaram Multi Pap's Recent Performance Look Like?

It looks like revenue growth has deserted Sundaram Multi Pap recently, which is not something to boast about. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Sundaram Multi Pap, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Sundaram Multi Pap's Revenue Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 95% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

This is in contrast to the rest of the industry, which is expected to grow by 43% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Sundaram Multi Pap's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Sundaram Multi Pap's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Having said that, be aware Sundaram Multi Pap is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Sundaram Multi Pap's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.