DRB-HICOM Berhad (KLSE:DRBHCOM) Shares Fly 25% But Investors Aren't Buying For Growth

The DRB-HICOM Berhad (KLSE:DRBHCOM) share price has done very well over the last month, posting an excellent gain of 25%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.8% in the last twelve months.

Although its price has surged higher, given about half the companies operating in Malaysia's Auto industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider DRB-HICOM Berhad as an attractive investment with its 0.1x 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 limited.

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See our latest analysis for DRB-HICOM Berhad

How Has DRB-HICOM Berhad Performed Recently?

With revenue growth that's inferior to most other companies of late, DRB-HICOM Berhad has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Do Revenue Forecasts Match The Low P/S Ratio?

DRB-HICOM Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.1%. The solid recent performance means it was also able to grow revenue by 27% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 5.5% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 12%, which is noticeably more attractive.

With this information, we can see why DRB-HICOM Berhad is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite DRB-HICOM Berhad's share price climbing recently, its P/S still lags most other companies. 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.

We've established that DRB-HICOM Berhad maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 3 warning signs for DRB-HICOM Berhad that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.