Investors Appear Satisfied With Prestige Estates Projects Limited's (NSE:PRESTIGE) Prospects

Prestige Estates Projects Limited's (NSE:PRESTIGE) price-to-sales (or "P/S") ratio of 8.9x might make it look like a sell right now compared to the Real Estate industry in India, where around half of the companies have P/S ratios below 6.6x and even P/S below 3x are quite common. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Prestige Estates Projects

How Has Prestige Estates Projects Performed Recently?

While the industry has experienced revenue growth lately, Prestige Estates Projects' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Prestige Estates Projects' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.3% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 64% over the next year. With the industry only predicted to deliver 37%, the company is positioned for a stronger revenue result.

With this information, we can see why Prestige Estates Projects is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Prestige Estates Projects' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Prestige Estates Projects (1 doesn't sit too well with us!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.