Shareholders Should Be Pleased With Bharti Airtel Limited's (NSE:BHARTIARTL) Price

When close to half the companies in the Wireless Telecom industry in India have price-to-sales ratios (or "P/S") below 1.5x, you may consider Bharti Airtel Limited (NSE:BHARTIARTL) as a stock to avoid entirely with its 6.3x 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 so lofty.

View our latest analysis for Bharti Airtel

What Does Bharti Airtel's Recent Performance Look Like?

Recent revenue growth for Bharti Airtel has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Bharti Airtel will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Bharti Airtel's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.1% last year. Pleasingly, revenue has also lifted 45% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% each year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 6.0% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Bharti Airtel's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Bharti Airtel shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Bharti Airtel has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.