Ami Organics Limited (NSE:AMIORG) Looks Just Right With A 27% Price Jump

The Ami Organics Limited (NSE:AMIORG) share price has done very well over the last month, posting an excellent gain of 27%. The last month tops off a massive increase of 138% in the last year.

After such a large jump in price, you could be forgiven for thinking Ami Organics is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 11.6x, considering almost half the companies in India's Pharmaceuticals industry have P/S ratios below 2.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Ami Organics

What Does Ami Organics' P/S Mean For Shareholders?

Ami Organics certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Ami Organics' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 36% last year. The latest three year period has also seen an excellent 97% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 30% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 15%, which is noticeably less attractive.

In light of this, it's understandable that Ami Organics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Ami Organics' P/S?

Ami Organics' P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Ami Organics shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 1 warning sign for Ami Organics you should be aware of.

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.