GMR Airports Infrastructure Limited's (NSE:GMRINFRA) Popularity With Investors Is Under Threat From Overpricing

It's not a stretch to say that GMR Airports Infrastructure Limited's (NSE:GMRINFRA) price-to-sales (or "P/S") ratio of 4.4x right now seems quite "middle-of-the-road" for companies in the Infrastructure industry in India, where the median P/S ratio is around 3.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for GMR Airports Infrastructure

How Has GMR Airports Infrastructure Performed Recently?

GMR Airports Infrastructure hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is GMR Airports Infrastructure's Revenue Growth Trending?

In order to justify its P/S ratio, GMR Airports Infrastructure would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. As a result, revenue from three years ago have also fallen 24% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 12% as estimated by the sole analyst watching the company. With the industry predicted to deliver 48% growth, that's a disappointing outcome.

In light of this, it's somewhat alarming that GMR Airports Infrastructure's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From GMR Airports Infrastructure's P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It appears that GMR Airports Infrastructure currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

You need to take note of risks, for example - GMR Airports Infrastructure has 2 warning signs (and 1 which is concerning) we think you should know about.

If these risks are making you reconsider your opinion on GMR Airports Infrastructure, 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.