It's A Story Of Risk Vs Reward With ReNew Energy Global Plc (NASDAQ:RNW)

With a median price-to-sales (or "P/S") ratio of close to 2.2x in the Renewable Energy industry in the United States, you could be forgiven for feeling indifferent about ReNew Energy Global Plc's (NASDAQ:RNW) P/S ratio, which comes in at about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for ReNew Energy Global

How ReNew Energy Global Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, ReNew Energy Global has been doing quite well of late. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think ReNew Energy Global's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, ReNew Energy Global would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.2% last year. This was backed up an excellent period prior to see revenue up by 64% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 29% as estimated by the seven analysts watching the company. With the industry only predicted to deliver 18%, the company is positioned for a stronger revenue result.

In light of this, it's curious that ReNew Energy Global's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

Despite enticing revenue growth figures that outpace the industry, ReNew Energy Global's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for ReNew Energy Global you should be aware of, and 1 of them is concerning.

If these risks are making you reconsider your opinion on ReNew Energy Global, 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.