FSN E-Commerce Ventures Limited's (NSE:NYKAA) Share Price Matching Investor Opinion
When close to half the companies in the Specialty Retail industry in India have price-to-sales ratios (or "P/S") below 1.3x, you may consider FSN E-Commerce Ventures Limited (NSE:NYKAA) as a stock to avoid entirely with its 8.2x 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 FSN E-Commerce Ventures
How FSN E-Commerce Ventures Has Been Performing
Recent revenue growth for FSN E-Commerce Ventures has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on FSN E-Commerce Ventures will help you uncover what's on the horizon.Is There Enough Revenue Growth Forecasted For FSN E-Commerce Ventures?
The only time you'd be truly comfortable seeing a P/S as steep as FSN E-Commerce Ventures' is when the company's growth is on track to outshine the industry decidedly.
If we review the last year of revenue growth, the company posted a terrific increase of 25%. The strong recent performance means it was also able to grow revenue by 98% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 26% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 20% each year growth forecast for the broader industry.
In light of this, it's understandable that FSN E-Commerce Ventures' 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.
The Key Takeaway
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we suspected, our examination of FSN E-Commerce Ventures' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for FSN E-Commerce Ventures that you should be aware of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.