Roadzen, Inc.'s (NASDAQ:RDZN) price-to-sales (or "P/S") ratio of 2.4x might make it look like a strong buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 6x and even P/S above 13x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Roadzen

What Does Roadzen's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Roadzen has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Roadzen.

Is There Any Revenue Growth Forecasted For Roadzen?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Roadzen's to be considered reasonable.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 88% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 25%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Roadzen's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Roadzen's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Roadzen's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Roadzen (2 make us uncomfortable!) that you should be aware of before investing here.

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

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