Amber Enterprises India Limited's (NSE:AMBER) 46% Price Boost Is Out Of Tune With Revenues

The Amber Enterprises India Limited (NSE:AMBER) share price has done very well over the last month, posting an excellent gain of 46%. The annual gain comes to 127% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Amber Enterprises India's P/S ratio of 2.9x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in India is also close to 2.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Amber Enterprises India

What Does Amber Enterprises India's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Amber Enterprises India has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. 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 Amber Enterprises India will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Amber Enterprises India?

In order to justify its P/S ratio, Amber Enterprises India would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 9.2% gain to the company's revenues. The latest three year period has also seen an excellent 114% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues 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. With the industry predicted to deliver 32% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's curious that Amber Enterprises India's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Amber Enterprises India's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

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. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Amber Enterprises India is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Amber Enterprises India's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.