Subdued Growth No Barrier To HLT Global Berhad (KLSE:HLT) With Shares Advancing 30%

HLT Global Berhad (KLSE:HLT) shares have had a really impressive month, gaining 30% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.5% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that HLT Global Berhad's price-to-sales (or "P/S") ratio of 2.4x right now seems quite "middle-of-the-road" compared to the Machinery industry in Malaysia, where the median P/S ratio is around 2.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for HLT Global Berhad

How Has HLT Global Berhad Performed Recently?

For instance, HLT Global Berhad's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may 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 HLT Global Berhad will help you shine a light on its historical performance.

How Is HLT Global Berhad's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. As a result, revenue from three years ago have also fallen 74% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that HLT Global Berhad is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

HLT Global Berhad's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We find it unexpected that HLT Global Berhad trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 4 warning signs for HLT Global Berhad (3 are significant!) that you should be aware of.

If these risks are making you reconsider your opinion on HLT Global 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.