Stock Analysis

Godrej Properties Limited's (NSE:GODREJPROP) Shareholders Might Be Looking For Exit

NSEI:GODREJPROP
Source: Shutterstock

You may think that with a price-to-sales (or "P/S") ratio of 20x Godrej Properties Limited (NSE:GODREJPROP) is a stock to avoid completely, seeing as almost half of all the Real Estate companies in India have P/S ratios under 6.9x and even P/S lower than 3x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Godrej Properties

ps-multiple-vs-industry
NSEI:GODREJPROP Price to Sales Ratio vs Industry January 8th 2024

How Godrej Properties Has Been Performing

Recent times haven't been great for Godrej Properties as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Godrej Properties will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Godrej Properties?

In order to justify its P/S ratio, Godrej Properties would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 55% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 83% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 1.4% over the next year. Meanwhile, the rest of the industry is forecast to expand by 36%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Godrej Properties' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Godrej Properties' 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.

It comes as a surprise to see Godrej Properties trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 2 warning signs for Godrej Properties that we have uncovered.

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

New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

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.