Pinning Down Sical Logistics Limited's (NSE:SICALLOG) P/S Is Difficult Right Now

With a median price-to-sales (or "P/S") ratio of close to 2.3x in the Infrastructure industry in India, you could be forgiven for feeling indifferent about Sical Logistics Limited's (NSE:SICALLOG) P/S ratio of 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Sical Logistics

How Sical Logistics Has Been Performing

With revenue growth that's exceedingly strong of late, Sical Logistics has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sical Logistics' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Sical Logistics?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sical Logistics' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 44%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 25% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 7.7% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Sical Logistics is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Sical Logistics' 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.

Our look at Sical Logistics revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sical Logistics, and understanding them should be part of your investment process.

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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.