Rama Steel Tubes Limited's (NSE:RAMASTEEL) Shareholders Might Be Looking For Exit
There wouldn't be many who think Rama Steel Tubes Limited's (NSE:RAMASTEEL) price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S for the Metals and Mining industry in India is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Rama Steel Tubes
How Rama Steel Tubes Has Been Performing
Revenue has risen firmly for Rama Steel Tubes recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Rama Steel Tubes will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Rama Steel Tubes will help you shine a light on its historical performance.Is There Some Revenue Growth Forecasted For Rama Steel Tubes?
Rama Steel Tubes' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. The latest three year period has also seen a 12% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 19% shows it's noticeably less attractive.
With this in mind, we find it intriguing that Rama Steel Tubes' P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Bottom Line On Rama Steel Tubes' P/S
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of Rama Steel Tubes revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
Before you settle on your opinion, we've discovered 2 warning signs for Rama Steel Tubes 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.