Unpleasant Surprises Could Be In Store For Vakrangee Limited's (NSE:VAKRANGEE) Shares

When close to half the companies in the Multiline Retail industry in India have price-to-sales ratios (or "P/S") below 2.1x, you may consider Vakrangee Limited (NSE:VAKRANGEE) as a stock to potentially avoid with its 3.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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View our latest analysis for Vakrangee

What Does Vakrangee's P/S Mean For Shareholders?

Revenue has risen firmly for Vakrangee recently, which is pleasing to see. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Vakrangee's earnings, revenue and cash flow.

How Is Vakrangee's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Vakrangee's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. Still, revenue has fallen 69% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 8.4% shows it's an unpleasant look.

With this information, we find it concerning that Vakrangee is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Vakrangee revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Vakrangee that you need to be mindful of.

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