Ahmad Zaki Resources Berhad's (KLSE:AZRB) Price Is Right But Growth Is Lacking After Shares Rocket 32%

Ahmad Zaki Resources Berhad (KLSE:AZRB) shares have had a really impressive month, gaining 32% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 92%.

Even after such a large jump in price, considering around half the companies operating in Malaysia's Construction industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Ahmad Zaki Resources Berhad as an solid investment opportunity with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ahmad Zaki Resources Berhad

What Does Ahmad Zaki Resources Berhad's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Ahmad Zaki Resources Berhad over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may 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 Ahmad Zaki Resources Berhad will help you shine a light on its historical performance.

How Is Ahmad Zaki Resources Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, Ahmad Zaki Resources Berhad would need to produce sluggish growth that's trailing 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 9.2%. The last three years don't look nice either as the company has shrunk revenue by 53% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.

In light of this, it's understandable that Ahmad Zaki Resources Berhad's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

The latest share price surge wasn't enough to lift Ahmad Zaki Resources Berhad's P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Ahmad Zaki Resources Berhad confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Ahmad Zaki Resources Berhad (1 shouldn't be ignored) you should be aware of.

If you're unsure about the strength of Ahmad Zaki Resources Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.