Emirates Reem Investments Company P.J.S.C's (DFM:ERC) P/S Is Still On The Mark Following 39% Share Price Bounce

Emirates Reem Investments Company P.J.S.C (DFM:ERC) shareholders have had their patience rewarded with a 39% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 5.6% isn't as impressive.

Since its price has surged higher, when almost half of the companies in the United Arab Emirates' Beverage industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Emirates Reem Investments Company P.J.S.C as a stock not worth researching with its 14.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Emirates Reem Investments Company P.J.S.C

How Emirates Reem Investments Company P.J.S.C Has Been Performing

Emirates Reem Investments Company P.J.S.C certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Emirates Reem Investments Company P.J.S.C will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Emirates Reem Investments Company P.J.S.C?

Emirates Reem Investments Company P.J.S.C's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 124% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 271% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 14% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Emirates Reem Investments Company P.J.S.C is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

Emirates Reem Investments Company P.J.S.C's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Emirates Reem Investments Company P.J.S.C revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Emirates Reem Investments Company P.J.S.C that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.