Ekovest Berhad's (KLSE:EKOVEST) 29% Share Price Plunge Could Signal Some Risk

Ekovest Berhad (KLSE:EKOVEST) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 9.2% over that longer period.

In spite of the heavy fall in price, there still wouldn't be many who think Ekovest Berhad's price-to-sales (or "P/S") ratio of 1x is worth a mention when it essentially matches the median P/S in Malaysia's Construction industry. 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.

Check out our latest analysis for Ekovest Berhad

How Ekovest Berhad Has Been Performing

With revenue growth that's inferior to most other companies of late, Ekovest Berhad has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ekovest Berhad.

Do Revenue Forecasts Match The P/S Ratio?

Ekovest Berhad's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.1% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 1.3% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 11% as estimated by the sole analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 16%, which is noticeably more attractive.

With this information, we find it interesting that Ekovest Berhad is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Ekovest Berhad's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

When you consider that Ekovest Berhad's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It is also worth noting that we have found 2 warning signs for Ekovest Berhad (1 is a bit concerning!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.