GMR Airports Limited's (NSE:GMRAIRPORT) Popularity With Investors Is Clear

When you see that almost half of the companies in the Infrastructure industry in India have price-to-sales ratios (or "P/S") below 1.7x, GMR Airports Limited (NSE:GMRAIRPORT) looks to be giving off strong sell signals with its 8x 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

See our latest analysis for GMR Airports

What Does GMR Airports' Recent Performance Look Like?

GMR Airports certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For GMR Airports?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like GMR Airports' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Pleasingly, revenue has also lifted 36% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 32% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 7.8%, which is noticeably less attractive.

In light of this, it's understandable that GMR Airports' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On GMR Airports' P/S

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 GMR Airports shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for GMR Airports that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.