Getting In Cheap On United Breweries Limited (NSE:UBL) Is Unlikely
When you see that almost half of the companies in the Beverage industry in India have price-to-sales ratios (or "P/S") below 3x, United Breweries Limited (NSE:UBL) looks to be giving off some sell signals with its 4.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for United Breweries
What Does United Breweries' Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, United Breweries has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.
Keen to find out how analysts think United Breweries' future stacks up against the industry? In that case, our free report is a great place to start.Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, United Breweries would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a decent 8.1% gain to the company's revenues. Revenue has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the seven analysts following the company. That's shaping up to be similar to the 15% growth forecast for the broader industry.
With this in consideration, we find it intriguing that United Breweries' P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.
What We Can Learn From United Breweries' P/S?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that United Breweries currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.
Having said that, be aware United Breweries is showing 1 warning sign in our investment analysis, you should know about.
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.