Investors Appear Satisfied With Delhivery Limited's (NSE:DELHIVERY) Prospects
When you see that almost half of the companies in the Logistics industry in India have price-to-sales ratios (or "P/S") below 0.7x, Delhivery Limited (NSE:DELHIVERY) looks to be giving off strong sell signals with its 3.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Delhivery
What Does Delhivery's P/S Mean For Shareholders?
Delhivery could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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 Delhivery 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, Delhivery would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 9.2% last year. The solid recent performance means it was also able to grow revenue by 24% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 16% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 8.0% per annum growth forecast for the broader industry.
With this information, we can see why Delhivery is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
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.
We've established that Delhivery maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Logistics industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Delhivery that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.