Optimistic Investors Push Ho Hup Construction Company Berhad (KLSE:HOHUP) Shares Up 26% But Growth Is Lacking

Ho Hup Construction Company Berhad (KLSE:HOHUP) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 43% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Ho Hup Construction Company Berhad's price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S in Malaysia's Construction industry is similar at about 1.1x. 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 Ho Hup Construction Company Berhad

How Has Ho Hup Construction Company Berhad Performed Recently?

As an illustration, revenue has deteriorated at Ho Hup Construction Company Berhad over the last year, which is not ideal at all. 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.

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 Ho Hup Construction Company Berhad's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Ho Hup Construction Company Berhad?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 61%. This means it has also seen a slide in revenue over the longer-term as revenue is down 63% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 20% shows it's an unpleasant look.

With this information, we find it concerning that Ho Hup Construction Company 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Ho Hup Construction Company Berhad's P/S

Its shares have lifted substantially and now Ho Hup Construction Company Berhad's P/S is back within range of the industry median. 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.

Our look at Ho Hup Construction Company Berhad revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 5 warning signs for Ho Hup Construction Company Berhad (3 are concerning!) that you need to be mindful 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.