With Infratil Limited (NZSE:IFT) It Looks Like You'll Get What You Pay For

Infratil Limited's (NZSE:IFT) price-to-sales (or "P/S") ratio of 3.5x may look like a poor investment opportunity when you consider close to half the companies in the Industrials industry in New Zealand have P/S ratios below 0.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Infratil

How Has Infratil Performed Recently?

With revenue growth that's superior to most other companies of late, Infratil has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Infratil.

How Is Infratil's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Infratil's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 29% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 1.2%, which is noticeably less attractive.

In light of this, it's understandable that Infratil'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 We Can Learn From Infratil'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.

Our look into Infratil 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 these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Infratil (2 are concerning!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.