Ai-Media Technologies Limited's (ASX:AIM) P/S Is Still On The Mark Following 63% Share Price Bounce

Despite an already strong run, Ai-Media Technologies Limited (ASX:AIM) shares have been powering on, with a gain of 63% in the last thirty days. The annual gain comes to 128% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies operating in Australia's Commercial Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Ai-Media Technologies as a stock to potentially avoid with its 2.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Ai-Media Technologies

What Does Ai-Media Technologies' Recent Performance Look Like?

There hasn't been much to differentiate Ai-Media Technologies' and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

In order to justify its P/S ratio, Ai-Media Technologies would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.4% last year. This was backed up an excellent period prior to see revenue up by 35% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 14% per annum over the next three years. With the industry only predicted to deliver 5.0% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Ai-Media Technologies' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Ai-Media Technologies shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Ai-Media Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Ai-Media Technologies that you should be aware of.

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.