Bhagiradha Chemicals & Industries Limited (NSE:BHAGCHEM) Investors Are Less Pessimistic Than Expected

When you see that almost half of the companies in the Chemicals industry in India have price-to-sales ratios (or "P/S") below 1.3x, Bhagiradha Chemicals & Industries Limited (NSE:BHAGCHEM) looks to be giving off strong sell signals with its 5.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Bhagiradha Chemicals & Industries

How Has Bhagiradha Chemicals & Industries Performed Recently?

The revenue growth achieved at Bhagiradha Chemicals & Industries over the last year would be more than acceptable for most companies. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Bhagiradha Chemicals & Industries will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Bhagiradha Chemicals & Industries?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Bhagiradha Chemicals & Industries' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Bhagiradha Chemicals & Industries' P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Bhagiradha Chemicals & Industries' P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Bhagiradha Chemicals & Industries revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It is also worth noting that we have found 3 warning signs for Bhagiradha Chemicals & Industries (2 shouldn't be ignored!) that you need to take into consideration.

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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.