Adani Green Energy Limited's (NSE:ADANIGREEN) Price In Tune With Revenues

When close to half the companies in the Renewable Energy industry in India have price-to-sales ratios (or "P/S") below 2.5x, you may consider Adani Green Energy Limited (NSE:ADANIGREEN) as a stock to avoid entirely with its 20x 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.

View our latest analysis for Adani Green Energy

What Does Adani Green Energy's P/S Mean For Shareholders?

Adani Green Energy certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Adani Green Energy.

Is There Enough Revenue Growth Forecasted For Adani Green Energy?

In order to justify its P/S ratio, Adani Green Energy would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 52%. The latest three year period has also seen an excellent 206% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 37% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 14%, which is noticeably less attractive.

In light of this, it's understandable that Adani Green Energy's 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.

What Does Adani Green Energy's P/S Mean For Investors?

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.

We've established that Adani Green Energy maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Renewable Energy industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about these 2 warning signs we've spotted with Adani Green Energy (including 1 which is significant).

If you're unsure about the strength of Adani Green Energy's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.