V-Mart Retail Limited (NSE:VMART) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the V-Mart Retail Limited (NSE:VMART) share price has dived 26% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 39% in the last year.

After such a large drop in price, V-Mart Retail's price-to-sales (or "P/S") ratio of 1.9x might 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 4.8x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for V-Mart Retail

How V-Mart Retail Has Been Performing

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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Pleasingly, revenue has also lifted 125% in aggregate from three years ago, 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 17% per annum as estimated by the analysts watching the company. That's shaping up to be materially higher than the 6.8% each year growth forecast for the broader industry.

In light of this, it's peculiar that V-Mart Retail's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

V-Mart Retail's P/S looks about as weak as its stock price lately. 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.

To us, it seems V-Mart Retail currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. 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.

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.