With a median price-to-sales (or "P/S") ratio of close to 2x in the Renewable Energy industry in the United States, you could be forgiven for feeling indifferent about ReNew Energy Global Plc's (NASDAQ:RNW) P/S ratio of 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How ReNew Energy Global Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, ReNew Energy Global has been doing quite well of late. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on ReNew Energy Global will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like ReNew Energy Global's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 6.2% gain to the company's revenues. Pleasingly, revenue has also lifted 64% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 27% over the next year. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this information, we find it interesting that ReNew Energy Global is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does ReNew Energy Global's P/S Mean For Investors?

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.

Looking at ReNew Energy Global's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Having said that, be aware ReNew Energy Global is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

If you're unsure about the strength of ReNew Energy Global's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.