A Piece Of The Puzzle Missing From BCM Alliance Berhad's (KLSE:BCMALL) 50% Share Price Climb

BCM Alliance Berhad (KLSE:BCMALL) shares have had a really impressive month, gaining 50% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, there still wouldn't be many who think BCM Alliance Berhad's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Malaysia's Trade Distributors industry is similar at about 0.5x. 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.

View our latest analysis for BCM Alliance Berhad

How Has BCM Alliance Berhad Performed Recently?

For example, consider that BCM Alliance Berhad's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on BCM Alliance Berhad's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For BCM Alliance Berhad?

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

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 9.6%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 27% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is only predicted to deliver 5.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that BCM Alliance Berhad is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From BCM Alliance Berhad's P/S?

BCM Alliance Berhad's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

To our surprise, BCM Alliance Berhad revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 4 warning signs for BCM Alliance Berhad that we have uncovered.

If these risks are making you reconsider your opinion on BCM Alliance 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.