The Price Is Right For Emirates Reem Investments Company P.J.S.C (DFM:ERC)

When close to half the companies in the Beverage industry in the United Arab Emirates have price-to-sales ratios (or "P/S") below 2.1x, you may consider Emirates Reem Investments Company P.J.S.C (DFM:ERC) as a stock to avoid entirely with its 9.6x 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.

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

What Does Emirates Reem Investments Company P.J.S.C's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Emirates Reem Investments Company P.J.S.C has been doing very well. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Emirates Reem Investments Company P.J.S.C's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Emirates Reem Investments Company P.J.S.C's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 137% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 12%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Emirates Reem Investments Company P.J.S.C's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

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.

We've established that Emirates Reem Investments Company P.J.S.C maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Emirates Reem Investments Company P.J.S.C, and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.