Trent Limited's (NSE:TRENT) P/S Still Appears To Be Reasonable

Trent Limited's (NSE:TRENT) price-to-sales (or "P/S") ratio of 11.2x may look like a poor investment opportunity when you consider close to half the companies in the Specialty Retail industry in India have P/S ratios below 1.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

We've discovered 1 warning sign about Trent. View them for free.

See our latest analysis for Trent

How Trent Has Been Performing

Recent times haven't been great for Trent 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. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Trent's Revenue Growth Trending?

Trent's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 44% last year. The strong recent performance means it was also able to grow revenue by 298% 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 eleven analysts covering the company suggest revenue should grow by 31% each year over the next three years. With the industry only predicted to deliver 27% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Trent 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.

What Does Trent's P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Trent maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Specialty Retail industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 1 warning sign for Trent that you need to take into consideration.

If these risks are making you reconsider your opinion on Trent, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.