V-Mart Retail Limited (NSE:VMART) Screens Well But There Might Be A Catch

With a price-to-sales (or "P/S") ratio of 2.7x V-Mart Retail Limited (NSE:VMART) may be sending bullish signals at the moment, given that almost half of all the Multiline Retail companies in India have P/S ratios greater than 4.7x and even P/S higher than 65x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for V-Mart Retail

How V-Mart Retail Has Been Performing

With revenue growth that's inferior to most other companies of late, V-Mart Retail has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on V-Mart Retail.

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Pleasingly, revenue has also lifted 146% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.8% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that V-Mart Retail's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On V-Mart Retail's P/S

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. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You always need to take note of risks, for example - V-Mart Retail has 1 warning sign we think you should be aware of.

If you're unsure about the strength of V-Mart Retail's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.