Optimistic Investors Push Amber Enterprises India Limited (NSE:AMBER) Shares Up 34% But Growth Is Lacking

The Amber Enterprises India Limited (NSE:AMBER) share price has done very well over the last month, posting an excellent gain of 34%. The last month tops off a massive increase of 129% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Amber Enterprises India's price-to-sales (or "P/S") ratio of 2.1x is worth a mention when the median P/S in India's Consumer Durables industry is similar at about 2.2x. 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.

See our latest analysis for Amber Enterprises India

How Has Amber Enterprises India Performed Recently?

Amber Enterprises India 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Amber Enterprises India.

What Are Revenue Growth Metrics Telling Us About The P/S?

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.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. The latest three year period has also seen an excellent 152% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 18% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 22% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that Amber Enterprises India's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

Its shares have lifted substantially and now Amber Enterprises India'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.

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.

Having said that, be aware Amber Enterprises India is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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.