It's Down 40% But Boustead Heavy Industries Corporation Berhad (KLSE:BHIC) Could Be Riskier Than It Looks

Boustead Heavy Industries Corporation Berhad (KLSE:BHIC) shareholders that were waiting for something to happen have been dealt a blow with a 40% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

Following the heavy fall in price, Boustead Heavy Industries Corporation Berhad's price-to-sales (or "P/S") ratio of 0.7x might make it look like a buy right now compared to the Machinery industry in Malaysia, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Boustead Heavy Industries Corporation Berhad

What Does Boustead Heavy Industries Corporation Berhad's P/S Mean For Shareholders?

Boustead Heavy Industries Corporation 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 Boustead Heavy Industries Corporation 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 Boustead Heavy Industries Corporation Berhad will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Boustead Heavy Industries Corporation Berhad?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Boustead Heavy Industries Corporation Berhad's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 83% gain to the company's top line. The latest three year period has also seen an excellent 58% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Boustead Heavy Industries Corporation Berhad's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

The southerly movements of Boustead Heavy Industries Corporation Berhad's shares means its P/S is now sitting at a pretty low level. 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.

We're very surprised to see Boustead Heavy Industries Corporation Berhad currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Boustead Heavy Industries Corporation Berhad is showing 4 warning signs in our investment analysis, and 3 of those can't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.