VIP Clothing Limited's (NSE:VIPCLOTHNG) Popularity With Investors Under Threat As Stock Sinks 25%

Simply Wall St · 03/12 00:05

To the annoyance of some shareholders, VIP Clothing Limited (NSE:VIPCLOTHNG) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

In spite of the heavy fall in price, you could still be forgiven for thinking VIP Clothing is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in India's Luxury industry have P/S ratios below 0.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for VIP Clothing

ps-multiple-vs-industry
NSEI:VIPCLOTHNG Price to Sales Ratio vs Industry March 12th 2025

How VIP Clothing Has Been Performing

We'd have to say that with no tangible growth over the last year, VIP Clothing's revenue has been unimpressive. Perhaps the market believes that revenue growth will improve markedly over current levels, inflating the P/S ratio. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for VIP Clothing, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

VIP Clothing's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Regardless, revenue has managed to lift by a handy 15% in aggregate from three years ago, thanks to the earlier period of growth. 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 87% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that VIP Clothing's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does VIP Clothing's P/S Mean For Investors?

There's still some elevation in VIP Clothing's P/S, even if the same can't be said for its share price recently. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of VIP Clothing revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with VIP Clothing, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on VIP Clothing, explore our interactive list of high quality stocks to get an idea of what else is out there.