Vodafone Idea Limited's (NSE:IDEA) P/S Still Appears To Be Reasonable

With a median price-to-sales (or "P/S") ratio of close to 1.4x in the Wireless Telecom industry in India, you could be forgiven for feeling indifferent about Vodafone Idea Limited's (NSE:IDEA) P/S ratio of 1.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Vodafone Idea

What Does Vodafone Idea's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Vodafone Idea has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Some Revenue Growth Forecasted For Vodafone Idea?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Vodafone Idea's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 3.5% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.4% per year over the next three years. With the industry predicted to deliver 5.9% growth each year, the company is positioned for a comparable revenue result.

With this information, we can see why Vodafone Idea is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Vodafone Idea's P/S

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.

A Vodafone Idea's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Wireless Telecom industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Before you take the next step, you should know about the 4 warning signs for Vodafone Idea (1 is a bit concerning!) that we have uncovered.

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.