Why Investors Shouldn't Be Surprised By Ami Organics Limited's (NSE:AMIORG) 30% Share Price Surge

Ami Organics Limited (NSE:AMIORG) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 77%.

After such a large jump in price, given around half the companies in India's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Ami Organics as a stock to avoid entirely with its 10.5x 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.

View our latest analysis for Ami Organics

What Does Ami Organics' Recent Performance Look Like?

Ami Organics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Ami Organics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Ami Organics?

The only time you'd be truly comfortable seeing a P/S as steep as Ami Organics' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. Pleasingly, revenue has also lifted 94% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 33% during the coming year according to the five analysts following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

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 Does Ami Organics' P/S Mean For Investors?

Shares in Ami Organics have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Ami Organics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about these 3 warning signs we've spotted with Ami Organics (including 1 which can't be ignored).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.