AstraZeneca Pharma India Limited (NSE:ASTRAZEN) Not Lagging Industry On Growth Or Pricing

AstraZeneca Pharma India Limited's (NSE:ASTRAZEN) price-to-sales (or "P/S") ratio of 11.1x may look like a poor investment opportunity when you consider close to half the companies in the Pharmaceuticals industry in India have P/S ratios below 2.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for AstraZeneca Pharma India

What Does AstraZeneca Pharma India's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, AstraZeneca Pharma India has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on AstraZeneca Pharma India's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

AstraZeneca Pharma India's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 35% last year. The latest three year period has also seen an excellent 123% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 12% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why AstraZeneca Pharma India's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From AstraZeneca Pharma India'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.

As we suspected, our examination of AstraZeneca Pharma India revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you settle on your opinion, we've discovered 2 warning signs for AstraZeneca Pharma India (1 makes us a bit uncomfortable!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.