Market Participants Recognise Ainsworth Game Technology Limited's (ASX:AGI) Revenues Pushing Shares 28% Higher

Ainsworth Game Technology Limited (ASX:AGI) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Ainsworth Game Technology's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Australia is also close to 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Ainsworth Game Technology

How Ainsworth Game Technology Has Been Performing

Ainsworth Game Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ainsworth Game Technology will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Ainsworth Game Technology?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Ainsworth Game Technology's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.3%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 40% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 4.5% per annum as estimated by the two analysts watching the company. With the industry predicted to deliver 5.0% growth per year, the company is positioned for a comparable revenue result.

With this information, we can see why Ainsworth Game Technology is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What Does Ainsworth Game Technology's P/S Mean For Investors?

Its shares have lifted substantially and now Ainsworth Game Technology's P/S is back within range of the industry median. 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.

A Ainsworth Game Technology's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Hospitality industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You should always think about risks. Case in point, we've spotted 1 warning sign for Ainsworth Game Technology you should be aware of.

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.