Investors Appear Satisfied With Ai-Media Technologies Limited's (ASX:AIM) Prospects As Shares Rocket 55%

The Ai-Media Technologies Limited (ASX:AIM) share price has done very well over the last month, posting an excellent gain of 55%. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, you could be forgiven for thinking Ai-Media Technologies is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.6x, considering almost half the companies in Australia's Commercial Services industry have P/S ratios below 1.9x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Ai-Media Technologies

How Ai-Media Technologies Has Been Performing

While the industry has experienced revenue growth lately, Ai-Media Technologies' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Ai-Media Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Ai-Media Technologies' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.1% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.9% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 18% per annum over the next three years. That's shaping up to be materially higher than the 5.3% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Ai-Media Technologies' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Ai-Media Technologies' P/S Mean For Investors?

Ai-Media Technologies' P/S is on the rise since its shares have risen strongly. 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. 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 1 warning sign for Ai-Media Technologies that you should be aware of.

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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.