Vertoz Limited (NSE:VERTOZ) Not Lagging Industry On Growth Or Pricing

Vertoz Limited's (NSE:VERTOZ) price-to-sales (or "P/S") ratio of 17.1x may look like a poor investment opportunity when you consider close to half the companies in the Media industry in India have P/S ratios below 2.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Vertoz

What Does Vertoz's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Vertoz has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Vertoz's earnings, revenue and cash flow.

How Is Vertoz's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 70% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 214% in total over the last three years. 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 12% shows it's noticeably more attractive.

In light of this, it's understandable that Vertoz's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Vertoz's P/S Mean For Investors?

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.

It's no surprise that Vertoz 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. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You should always think about risks. Case in point, we've spotted 1 warning sign for Vertoz you should be aware 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.