It's Down 40% But Ingenieur Gudang Berhad (KLSE:INGENIEU) Could Be Riskier Than It Looks

The Ingenieur Gudang Berhad (KLSE:INGENIEU) share price has fared very poorly over the last month, falling by a substantial 40%. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Ingenieur Gudang Berhad's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Malaysia is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Ingenieur Gudang Berhad

How Has Ingenieur Gudang Berhad Performed Recently?

Ingenieur Gudang Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Ingenieur Gudang Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Ingenieur Gudang Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Ingenieur Gudang Berhad's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 143% last year. The latest three year period has also seen an excellent 205% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 21% shows it's noticeably more attractive.

With this information, we find it interesting that Ingenieur Gudang Berhad is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Ingenieur Gudang Berhad's P/S?

Ingenieur Gudang Berhad's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We didn't quite envision Ingenieur Gudang Berhad's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 4 warning signs for Ingenieur Gudang Berhad (1 doesn't sit too well with us!) that you need to take into consideration.

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.