Little Excitement Around Hinduja Global Solutions Limited's (NSE:HGS) Revenues

Hinduja Global Solutions Limited's (NSE:HGS) price-to-sales (or "P/S") ratio of 0.5x might make it look like a strong buy right now compared to the IT industry in India, where around half of the companies have P/S ratios above 3.2x and even P/S above 8x 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 Hinduja Global Solutions

What Does Hinduja Global Solutions' Recent Performance Look Like?

For instance, Hinduja Global Solutions' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hinduja Global Solutions will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Hinduja Global Solutions?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Hinduja Global Solutions' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 30% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 8.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Hinduja Global Solutions is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Hinduja Global Solutions' P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Hinduja Global Solutions maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 2 warning signs for Hinduja Global Solutions (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Hinduja Global Solutions, 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.