V2 Retail Limited (NSE:V2RETAIL) Looks Just Right With A 27% Price Jump

V2 Retail Limited (NSE:V2RETAIL) shares have continued their recent momentum with a 27% gain in the last month alone. This latest share price bounce rounds out a remarkable 518% gain over the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about V2 Retail's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in India is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for V2 Retail

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

With revenue growth that's exceedingly strong of late, V2 Retail has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on V2 Retail's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For V2 Retail?

The only time you'd be comfortable seeing a P/S like V2 Retail's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 122% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 31% shows it's about the same on an annualised basis.

With this information, we can see why V2 Retail is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On V2 Retail's P/S

V2 Retail's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

As we've seen, V2 Retail's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 3 warning signs for V2 Retail (2 are a bit concerning!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.