GIIB Holdings Berhad's (KLSE:GIIB) 33% Price Boost Is Out Of Tune With Revenues

GIIB Holdings Berhad (KLSE:GIIB) shares have had a really impressive month, gaining 33% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.9% in the last twelve months.

Since its price has surged higher, given close to half the companies operating in Malaysia's Auto Components industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider GIIB Holdings Berhad as a stock to potentially avoid with its 1.1x 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 as high as it is.

Our free stock report includes 3 warning signs investors should be aware of before investing in GIIB Holdings Berhad. Read for free now.

See our latest analysis for GIIB Holdings Berhad

How GIIB Holdings Berhad Has Been Performing

For example, consider that GIIB Holdings Berhad's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is GIIB Holdings Berhad's Revenue Growth Trending?

GIIB Holdings Berhad's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. Even so, admirably revenue has lifted 33% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it worrying that GIIB Holdings Berhad's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On GIIB Holdings Berhad's P/S

GIIB Holdings Berhad's P/S is on the rise since its shares have risen strongly. 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.

Our examination of GIIB Holdings Berhad revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for GIIB Holdings Berhad (2 are significant) you should be aware of.

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.