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July 18, 2024
PI Global Investments

Reliance Infrastructure Limited (NSE:RELINFRA) Screens Well But There Might Be A Catch

With a price-to-sales (or “P/S”) ratio of 0.3x Reliance Infrastructure Limited (NSE:RELINFRA) may be sending very bullish signals at the moment, given that almost half of all the Electric Utilities companies in India have P/S ratios greater than 3.6x and even P/S higher than 6x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Reliance Infrastructure

NSEI:RELINFRA Price to Sales Ratio vs Industry March 14th 2024

How Has Reliance Infrastructure Performed Recently?

The recent revenue growth at Reliance Infrastructure would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s out of favour.

Although there are no analyst estimates available for Reliance Infrastructure, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Reliance Infrastructure?

In order to justify its P/S ratio, Reliance Infrastructure would need to produce anemic growth that’s substantially trailing the industry.

Retrospectively, the last year delivered a decent 4.0% gain to the company’s revenues. The latest three year period has also seen an excellent 33% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it’s fair to say the revenue growth recently has been superb for the company.

It’s interesting to note that the rest of the industry is similarly expected to grow by 8.3% over the next year, which is fairly even with the company’s recent medium-term annualised growth rates.

In light of this, it’s peculiar that Reliance Infrastructure’s P/S sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From Reliance Infrastructure’s 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 Reliance Infrastructure revealed its three-year revenue trends looking similar to current industry expectations hasn’t given the P/S the boost we expected, given that it’s lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company’s performance. medium-term

You always need to take note of risks, for example – Reliance Infrastructure has 2 warning signs we think 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).

Valuation is complex, but we’re helping make it simple.

Find out whether Reliance Infrastructure is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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