With Aether Industries Limited (NSE:AETHER) It Looks Like You'll Get What You Pay For

When you see that almost half of the companies in the Pharmaceuticals industry in India have price-to-sales ratios (or "P/S") below 1.8x, Aether Industries Limited (NSE:AETHER) looks to be giving off strong sell signals with its 19.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Aether Industries

How Aether Industries Has Been Performing

There hasn't been much to differentiate Aether Industries' and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. 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 Aether Industries will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Aether Industries?

In order to justify its P/S ratio, Aether Industries would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.7% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 103% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 33% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Aether Industries' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Aether Industries' P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Aether Industries' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Aether Industries with six simple checks will allow you to discover any risks that could be an issue.

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.