Subdued Growth No Barrier To Aditya Birla Fashion and Retail Limited's (NSE:ABFRL) Price

It's not a stretch to say that Aditya Birla Fashion and Retail Limited's (NSE:ABFRL) price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" for companies in the Specialty Retail industry in India, where the median P/S ratio is around 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for Aditya Birla Fashion and Retail

What Does Aditya Birla Fashion and Retail's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Aditya Birla Fashion and Retail's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aditya Birla Fashion and Retail.

Is There Some Revenue Growth Forecasted For Aditya Birla Fashion and Retail?

The only time you'd be comfortable seeing a P/S like Aditya Birla Fashion and Retail's is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 47%. This means it has also seen a slide in revenue over the longer-term as revenue is down 26% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 23% per annum, which is noticeably more attractive.

With this information, we find it interesting that Aditya Birla Fashion and Retail is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Aditya Birla Fashion and Retail's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at the analysts forecasts of Aditya Birla Fashion and Retail's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about this 1 warning sign we've spotted with Aditya Birla Fashion and Retail.

If you're unsure about the strength of Aditya Birla Fashion and Retail's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.