Amber Enterprises India Limited (NSE:AMBER) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected

Amber Enterprises India Limited (NSE:AMBER) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 147% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Amber Enterprises India's price-to-sales (or "P/S") ratio of 3.2x is worth a mention when the median P/S in India's Consumer Durables industry is similar at about 2.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Amber Enterprises India

How Has Amber Enterprises India Performed Recently?

With revenue growth that's inferior to most other companies of late, Amber Enterprises India has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Amber Enterprises India will help you uncover what's on the horizon.

How Is Amber Enterprises India's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 17%. Pleasingly, revenue has also lifted 124% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 21% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 29% per annum, which is noticeably more attractive.

With this information, we find it interesting that Amber Enterprises India is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Amber Enterprises India's P/S

Amber Enterprises India appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of Amber Enterprises India's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You always need to take note of risks, for example - Amber Enterprises India has 2 warning signs we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.