There's No Escaping Ahmad Zaki Resources Berhad's (KLSE:AZRB) Muted Revenues Despite A 31% Share Price Rise

Ahmad Zaki Resources Berhad (KLSE:AZRB) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.7% in the last twelve months.

Although its price has surged higher, considering around half the companies operating in Malaysia's Construction industry have price-to-sales ratios (or "P/S") above 0.9x, you may still consider Ahmad Zaki Resources Berhad as an solid investment opportunity with its 0.2x 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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View our latest analysis for Ahmad Zaki Resources Berhad

How Has Ahmad Zaki Resources Berhad Performed Recently?

Ahmad Zaki Resources Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Ahmad Zaki Resources Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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.

Is There Any Revenue Growth Forecasted For Ahmad Zaki Resources Berhad?

The only time you'd be truly comfortable seeing a P/S as low as Ahmad Zaki Resources Berhad's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 36% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to grow by 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Ahmad Zaki Resources Berhad is trading at a P/S lower than the industry. 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.

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

The latest share price surge wasn't enough to lift Ahmad Zaki Resources Berhad's P/S close to the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that Ahmad Zaki Resources Berhad maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Ahmad Zaki Resources Berhad is showing 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.