The Price Is Right For Ajinomoto (Malaysia) Berhad (KLSE:AJI)

When you see that almost half of the companies in the Food industry in Malaysia have price-to-sales ratios (or "P/S") below 1.2x, Ajinomoto (Malaysia) Berhad (KLSE:AJI) looks to be giving off some sell signals with its 1.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Ajinomoto (Malaysia) Berhad

What Does Ajinomoto (Malaysia) Berhad's P/S Mean For Shareholders?

Ajinomoto (Malaysia) Berhad has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Ajinomoto (Malaysia) Berhad's earnings, revenue and cash flow.

How Is Ajinomoto (Malaysia) Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, Ajinomoto (Malaysia) Berhad would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. The latest three year period has also seen an excellent 44% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 6.9% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Ajinomoto (Malaysia) Berhad is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Ajinomoto (Malaysia) Berhad's P/S?

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.

We've established that Ajinomoto (Malaysia) Berhad maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Ajinomoto (Malaysia) Berhad that you should be aware of.

If you're unsure about the strength of Ajinomoto (Malaysia) Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.