Shoppers Stop Limited's (NSE:SHOPERSTOP) Share Price Is Matching Sentiment Around Its Revenues

Shoppers Stop Limited's (NSE:SHOPERSTOP) price-to-sales (or "P/S") ratio of 1x might make it look like a strong buy right now compared to the Multiline Retail industry in India, where around half of the companies have P/S ratios above 3x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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Check out our latest analysis for Shoppers Stop

What Does Shoppers Stop's P/S Mean For Shareholders?

Shoppers Stop could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Shoppers Stop's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.8% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 34% 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 5.6% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.6%, which is noticeably more attractive.

With this information, we can see why Shoppers Stop is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Shoppers Stop'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.

We've established that Shoppers Stop maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Shoppers Stop (1 can't be ignored!) that you should be aware of.

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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.