There's Reason For Concern Over AYM Syntex Limited's (NSE:AYMSYNTEX) Massive 26% Price Jump

Despite an already strong run, AYM Syntex Limited (NSE:AYMSYNTEX) shares have been powering on, with a gain of 26% in the last thirty days. This latest share price bounce rounds out a remarkable 312% gain over the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think AYM Syntex's price-to-sales (or "P/S") ratio of 1.2x is worth a mention when it essentially matches the median P/S in India's Luxury industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for AYM Syntex

How Has AYM Syntex Performed Recently?

Revenue has risen firmly for AYM Syntex recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 AYM Syntex's earnings, revenue and cash flow.

How Is AYM Syntex's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 9.5%. The solid recent performance means it was also able to grow revenue by 9.5% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that AYM Syntex's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does AYM Syntex's P/S Mean For Investors?

AYM Syntex appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that AYM Syntex's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with AYM Syntex (at least 2 which are a bit unpleasant), and understanding these should be part of your investment process.

If you're unsure about the strength of AYM Syntex'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.