Investors Appear Satisfied With V2 Retail Limited's (NSE:V2RETAIL) Prospects As Shares Rocket 26%

Despite an already strong run, V2 Retail Limited (NSE:V2RETAIL) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days were the cherry on top of the stock's 633% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, when almost half of the companies in India's Specialty Retail industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider V2 Retail as a stock probably not worth researching with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for V2 Retail

What Does V2 Retail's P/S Mean For Shareholders?

Recent times have been advantageous for V2 Retail as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on V2 Retail will help you uncover what's on the horizon.

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 V2 Retail's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 48%. The latest three year period has also seen an excellent 125% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 48% over the next year. That's shaping up to be materially higher than the 32% growth forecast for the broader industry.

With this information, we can see why V2 Retail 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 We Can Learn From V2 Retail's P/S?

V2 Retail's P/S is on the rise since its shares have risen strongly. 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.

We've established that V2 Retail 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. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 1 warning sign for V2 Retail you should be aware of.

If these risks are making you reconsider your opinion on V2 Retail, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com