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Revenues tell the story for Vi Limited as its stock soars 25%

Vodafone Idea Limited shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last month tops off a massive increase of 117% in the last year.

Since its price has surged higher, given close to half the companies operating in India’s Wireless Telecom industry have price-to-sales ratios (or “P/S”) below 1.5x, you may consider Vodafone Idea as a stock to potentially avoid with its 2.5x P/S ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Vodafone Idea’s P/S Mean For Shareholders?
Recent times haven’t been great for Vodafone Idea as its revenue has been rising slower than most other companies. 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.

Want the full picture on analyst estimates for the company? Then our free report on Vodafone Idea will help you uncover what’s on the horizon.
How Is Vodafone Idea’s Revenue Growth Trending?
In order to justify its P/S ratio, Vodafone Idea would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company’s top line as the year before. Likewise, not much has changed from three years ago as revenue have been stuck during that whole time. Therefore, it’s fair to say that revenue growth has definitely eluded the company recently.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the analysts following the company. That’s shaping up to be materially higher than the 6.2% per year growth forecast for the broader industry.

In light of this, it’s understandable that Vodafone Idea’s P/S sits above the majority of other companies. Apparently shareholders aren’t keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Vodafone Idea’s P/S
The large bounce in Vodafone Idea’s shares has lifted the company’s P/S handsomely. While the price-to-sales ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of revenue expectations.

We’ve established that Vodafone Idea maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Wireless Telecom industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It’s hard to see the share price falling strongly in the near future under these circumstances. Simply Wall St News

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