Benign Growth For FITTERS Diversified Berhad (KLSE:FITTERS) Underpins Its Share Price

FITTERS Diversified Berhad's (KLSE:FITTERS) price-to-sales (or "P/S") ratio of 0.3x 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 1.4x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for FITTERS Diversified Berhad

How Has FITTERS Diversified Berhad Performed Recently?

As an illustration, revenue has deteriorated at FITTERS Diversified Berhad over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on FITTERS Diversified Berhad will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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 FITTERS Diversified Berhad's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For FITTERS Diversified Berhad?

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

Retrospectively, the last year delivered a frustrating 24% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 41% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why FITTERS Diversified Berhad is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From FITTERS Diversified Berhad's P/S?

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 FITTERS Diversified Berhad revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with FITTERS Diversified Berhad (at least 3 which are a bit unpleasant), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on FITTERS Diversified 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.