Allcargo Logistics Limited's (NSE:ALLCARGO) Shares Lagging The Industry But So Is The Business

Allcargo Logistics Limited's (NSE:ALLCARGO) price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Logistics industry in India, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Allcargo Logistics

What Does Allcargo Logistics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Allcargo Logistics' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Allcargo Logistics' future stacks up against the industry? In that case, our free report is a great place to start.

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

Allcargo Logistics' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 5.7% over the next year. With the industry predicted to deliver 14% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Allcargo Logistics' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Allcargo Logistics' 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.

We've established that Allcargo Logistics maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Allcargo Logistics (1 is potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on Allcargo Logistics, 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.