Why Investors Shouldn't Be Surprised By Aryt Industries Ltd.'s (TLV:ARYT) 31% Share Price Surge

Despite an already strong run, Aryt Industries Ltd. (TLV:ARYT) shares have been powering on, with a gain of 31% in the last thirty days. The annual gain comes to 142% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking Aryt Industries is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10x, considering almost half the companies in Israel's Aerospace & Defense industry have P/S ratios below 2.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Aryt Industries

How Has Aryt Industries Performed Recently?

Recent times have been quite advantageous for Aryt Industries as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Aryt Industries' earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Aryt Industries?

The only time you'd be truly comfortable seeing a P/S as steep as Aryt Industries' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 218% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 49% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Aryt Industries' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Shares in Aryt Industries have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

It's no surprise that Aryt Industries can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Aryt Industries.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.