Even With A 48% Surge, Cautious Investors Are Not Rewarding ABM Fujiya Berhad's (KLSE:AFUJIYA) Performance Completely

ABM Fujiya Berhad (KLSE:AFUJIYA) shareholders would be excited to see that the share price has had a great month, posting a 48% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think ABM Fujiya Berhad's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when it essentially matches the median P/S in Malaysia's Auto Components industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for ABM Fujiya Berhad

How ABM Fujiya Berhad Has Been Performing

With revenue growth that's exceedingly strong of late, ABM Fujiya Berhad has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ABM Fujiya Berhad will help you shine a light on its historical performance.

How Is ABM Fujiya Berhad's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ABM Fujiya Berhad's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 42%. The strong recent performance means it was also able to grow revenue by 100% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that ABM Fujiya Berhad's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On ABM Fujiya Berhad's P/S

Its shares have lifted substantially and now ABM Fujiya Berhad's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To our surprise, ABM Fujiya Berhad revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 4 warning signs for ABM Fujiya Berhad (3 are potentially serious!) that you need to be mindful 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.