Subdued Growth No Barrier To AWC Berhad (KLSE:AWC) With Shares Advancing 28%

Despite an already strong run, AWC Berhad (KLSE:AWC) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 136% in the last year.

Although its price has surged higher, there still wouldn't be many who think AWC Berhad's price-to-sales (or "P/S") ratio of 1x is worth a mention when it essentially matches the median P/S in Malaysia's Construction 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.

See our latest analysis for AWC Berhad

How AWC Berhad Has Been Performing

AWC Berhad could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For AWC Berhad?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow revenue by 26% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 5.7% during the coming year according to the three analysts following the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that AWC Berhad's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On AWC Berhad's P/S

AWC Berhad appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our look at the analysts forecasts of AWC Berhad's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 3 warning signs for AWC Berhad that you need to take into consideration.

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.