Cautious Investors Not Rewarding Shoppers Stop Limited's (NSE:SHOPERSTOP) Performance Completely

Shoppers Stop Limited's (NSE:SHOPERSTOP) price-to-sales (or "P/S") ratio of 1.4x may look like a very appealing investment opportunity when you consider close to half the companies in the Multiline Retail industry in India have P/S ratios greater than 4.9x. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shoppers Stop

What Does Shoppers Stop's P/S Mean For Shareholders?

Shoppers Stop could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Shoppers Stop?

Shoppers Stop's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a decent 9.9% gain to the company's revenues. The latest three year period has also seen an excellent 85% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 9.8% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.3%, which is not materially different.

With this information, we find it odd that Shoppers Stop is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Shoppers Stop's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It looks to us like the P/S figures for Shoppers Stop remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Shoppers Stop (1 is potentially serious) 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.

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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.