New Delhi Television Limited (NSE:NDTV) shares have had a really impressive month, gaining 40% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in India’s Media industry have price-to-sales ratios (or “P/S”) below 2x, you may consider New Delhi Television as a stock not worth researching with its 5.1x P/S ratio. Although, it’s not wise to just take the P/S at face value as there may be an explanation why it’s so lofty.

Check out our latest analysis for New Delhi Television

What Does New Delhi Television’s Recent Performance Look Like?

As an illustration, revenue has deteriorated at New Delhi Television over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn’t the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For New Delhi Television?

In order to justify its P/S ratio, New Delhi Television would need to produce outstanding growth that’s well in excess of the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company’s top line. The last three years don’t look nice either as the company has shrunk revenue by 4.4% in aggregate. Therefore, it’s fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry’s one-year forecast for expansion of 11% shows it’s an unpleasant look.

In light of this, it’s alarming that New Delhi Television’s P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren’t willing to let go of their stock at any price. There’s a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

The strong share price surge has lead to New Delhi Television’s P/S soaring as well. It’s argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We’ve established that New Delhi Television currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. 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.

Plus, you should also learn about these 3 warning signs we’ve spotted with New Delhi Television (including 1 which shouldn’t be ignored).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.