Malam-Team Holdings Ltd's (TLV:MLTH) Popularity With Investors Under Threat As Stock Sinks 25%

Malam-Team Holdings Ltd (TLV:MLTH) shares have had a horrible month, losing 25% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 65% in the last year.

Although its price has dipped substantially, there still wouldn't be many who think Malam-Team Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Israel's IT industry is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Malam-Team Holdings

What Does Malam-Team Holdings' Recent Performance Look Like?

Malam-Team Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Malam-Team Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Malam-Team Holdings?

The only time you'd be comfortable seeing a P/S like Malam-Team Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 9.3% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Malam-Team Holdings' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

With its share price dropping off a cliff, the P/S for Malam-Team Holdings looks to be in line with the rest of the IT industry. 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 Malam-Team Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Having said that, be aware Malam-Team Holdings is showing 3 warning signs in our investment analysis, and 2 of those are concerning.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.