Why Investors Shouldn't Be Surprised By Piramal Pharma Limited's (NSE:PPLPHARMA) P/S

There wouldn't be many who think Piramal Pharma Limited's (NSE:PPLPHARMA) price-to-sales (or "P/S") ratio of 2.9x is worth a mention when the median P/S for the Pharmaceuticals industry in India is similar at about 2.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Piramal Pharma

How Piramal Pharma Has Been Performing

There hasn't been much to differentiate Piramal Pharma's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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

Do Revenue Forecasts Match The P/S Ratio?

Piramal Pharma's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. The latest three year period has also seen an excellent 36% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the nine analysts watching the company. That's shaping up to be similar to the 12% per year growth forecast for the broader industry.

With this information, we can see why Piramal Pharma is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Piramal Pharma's 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.

A Piramal Pharma's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Pharmaceuticals industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Piramal Pharma that you should be aware of.

If these risks are making you reconsider your opinion on Piramal Pharma, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.