Apollo Micro Systems Limited's (NSE:APOLLO) Shares Leap 36% Yet They're Still Not Telling The Full Story

The Apollo Micro Systems Limited (NSE:APOLLO) share price has done very well over the last month, posting an excellent gain of 36%. Notwithstanding the latest gain, the annual share price return of 9.0% isn't as impressive.

Although its price has surged higher, there still wouldn't be many who think Apollo Micro Systems' price-to-sales (or "P/S") ratio of 8.9x is worth a mention when it essentially matches the median P/S in India's Aerospace & Defense industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Apollo Micro Systems

What Does Apollo Micro Systems' P/S Mean For Shareholders?

Apollo Micro Systems certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Some Revenue Growth Forecasted For Apollo Micro Systems?

In order to justify its P/S ratio, Apollo Micro Systems would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 43% last year. The latest three year period has also seen an excellent 157% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 38% over the next year. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Apollo Micro Systems' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now Apollo Micro Systems' P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Apollo Micro Systems currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Apollo Micro Systems you should be aware of, and 1 of them is concerning.

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.