The Market Lifts V-Mart Retail Limited (NSE:VMART) Shares 25% But It Can Do More

Despite an already strong run, V-Mart Retail Limited (NSE:VMART) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

In spite of the firm bounce in price, V-Mart Retail's price-to-sales (or "P/S") ratio of 1.9x might still make it look like a strong buy right now compared to the wider Multiline Retail industry in India, where around half of the companies have P/S ratios above 4.7x and even P/S above 14x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for V-Mart Retail

What Does V-Mart Retail's P/S Mean For Shareholders?

Recent times haven't been great for V-Mart Retail as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is V-Mart Retail's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as V-Mart Retail's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The latest three year period has also seen an excellent 161% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the analysts watching the company. With the industry only predicted to deliver 6.2% per year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that V-Mart Retail's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Even after such a strong price move, V-Mart Retail's P/S still trails the rest of the industry. 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.

V-Mart Retail's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for V-Mart Retail with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.