Vodafone Idea Limited's (NSE:IDEA) Subdued P/S Might Signal An Opportunity

There wouldn't be many who think Vodafone Idea Limited's (NSE:IDEA) price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S for the Wireless Telecom industry in India is similar at about 1.5x. 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?

Vodafone Idea could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vodafone Idea.

Is There Some Revenue Growth Forecasted For Vodafone Idea?

The only time you'd be comfortable seeing a P/S like Vodafone Idea's is when the company's growth is tracking the industry closely.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 9.2% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.2% per year, which is noticeably less attractive.

With this information, we find it interesting that Vodafone Idea is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

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.

Despite enticing revenue growth figures that outpace the industry, Vodafone Idea's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 3 warning signs for Vodafone Idea (1 makes us a bit uncomfortable!) that you should be aware of.

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

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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.