Why Investors Shouldn't Be Surprised By Chin Hin Group Berhad's (KLSE:CHINHIN) P/S

When close to half the companies in the Trade Distributors industry in Malaysia have price-to-sales ratios (or "P/S") below 0.5x, you may consider Chin Hin Group Berhad (KLSE:CHINHIN) as a stock to avoid entirely with its 3.1x 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 so lofty.

View our latest analysis for Chin Hin Group Berhad

What Does Chin Hin Group Berhad's Recent Performance Look Like?

Recent times have been quite advantageous for Chin Hin Group Berhad as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Chin Hin Group Berhad will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Chin Hin Group Berhad?

Chin Hin Group Berhad's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 34% last year. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 3.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Chin Hin Group Berhad is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Chin Hin Group Berhad's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Chin Hin Group Berhad revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Chin Hin Group Berhad (1 is potentially serious) you should be aware of.

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.