Shareholders Should Be Pleased With GMR Airports Infrastructure Limited's (NSE:GMRINFRA) Price

You may think that with a price-to-sales (or "P/S") ratio of 5.8x GMR Airports Infrastructure Limited (NSE:GMRINFRA) is a stock to potentially avoid, seeing as almost half of all the Infrastructure companies in India have P/S ratios under 4.1x and even P/S lower than 1.9x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for GMR Airports Infrastructure

How GMR Airports Infrastructure Has Been Performing

There hasn't been much to differentiate GMR Airports Infrastructure's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. 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 GMR Airports Infrastructure will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, GMR Airports Infrastructure would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 35%. The strong recent performance means it was also able to grow revenue by 35% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 31% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 18%, which is noticeably less attractive.

With this in mind, it's not hard to understand why GMR Airports Infrastructure's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of GMR Airports Infrastructure's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for GMR Airports Infrastructure with six simple checks on some of these key factors.

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.

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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.