There Is A Reason Tan Chong Motor Holdings Berhad's (KLSE:TCHONG) Price Is Undemanding

With a price-to-sales (or "P/S") ratio of 0.2x Tan Chong Motor Holdings Berhad (KLSE:TCHONG) may be sending bullish signals at the moment, given that almost half of all the Auto companies in Malaysia have P/S ratios greater than 0.9x and even P/S higher than 3x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Tan Chong Motor Holdings Berhad

What Does Tan Chong Motor Holdings Berhad's P/S Mean For Shareholders?

Tan Chong Motor Holdings Berhad could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Tan Chong Motor Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

Tan Chong Motor Holdings 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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.7%. As a result, revenue from three years ago have also fallen 33% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 0.8% during the coming year according to the five analysts following the company. That's shaping up to be materially lower than the 11% growth forecast for the broader industry.

With this in consideration, its clear as to why Tan Chong Motor Holdings Berhad's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Tan Chong Motor Holdings Berhad's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Tan Chong Motor Holdings Berhad (1 is significant) you should be aware of.

If these risks are making you reconsider your opinion on Tan Chong Motor Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.