Benign Growth For Ambica Agarbathies Aroma & Industries Limited (NSE:AMBICAAGAR) Underpins Its Share Price

Ambica Agarbathies Aroma & Industries Limited's (NSE:AMBICAAGAR) price-to-sales (or "P/S") ratio of 0.5x might make it look like a buy right now compared to the Chemicals industry in India, where around half of the companies have P/S ratios above 1.4x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Ambica Agarbathies Aroma & Industries

How Ambica Agarbathies Aroma & Industries Has Been Performing

The recent revenue growth at Ambica Agarbathies Aroma & Industries would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Ambica Agarbathies Aroma & Industries will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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How Is Ambica Agarbathies Aroma & Industries' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Ambica Agarbathies Aroma & Industries' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.7%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Ambica Agarbathies Aroma & Industries is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Ambica Agarbathies Aroma & Industries' P/S

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 examination of Ambica Agarbathies Aroma & Industries confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Ambica Agarbathies Aroma & Industries.

If these risks are making you reconsider your opinion on Ambica Agarbathies Aroma & Industries, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.