Why We're Not Concerned About Mahindra Lifespace Developers Limited's (NSE:MAHLIFE) Share Price

With a price-to-sales (or "P/S") ratio of 15.9x Mahindra Lifespace Developers Limited (NSE:MAHLIFE) may be sending very bearish signals at the moment, given that almost half of all the Real Estate companies in India have P/S ratios under 6.6x and even P/S lower than 3x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Mahindra Lifespace Developers

How Mahindra Lifespace Developers Has Been Performing

Mahindra Lifespace Developers could be doing better as it's been growing revenue less than most other companies lately. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mahindra Lifespace Developers.

Is There Enough Revenue Growth Forecasted For Mahindra Lifespace Developers?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Mahindra Lifespace Developers' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 59% gain to the company's top line. The latest three year period has also seen an excellent 148% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 52% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 36%, which is noticeably less attractive.

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

What We Can Learn From Mahindra Lifespace Developers' 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.

Our look into Mahindra Lifespace Developers shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Mahindra Lifespace Developers 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.

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.