Market Participants Recognise Ami Organics Limited's (NSE:AMIORG) Revenues Pushing Shares 26% Higher

Ami Organics Limited (NSE:AMIORG) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 28%.

Since its price has surged higher, when almost half of the companies in India's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.1x, you may consider Ami Organics as a stock not worth researching with its 9x 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.

Check out our latest analysis for Ami Organics

How Has Ami Organics Performed Recently?

With revenue growth that's superior to most other companies of late, Ami Organics has been doing relatively well. 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?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Ami Organics' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 97% in total over the last three years. 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 32% over the next year. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

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.

The Final Word

Ami Organics' P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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 these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Ami Organics you should be aware of.

If these risks are making you reconsider your opinion on Ami Organics, 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.