Stock Analysis

After Leaping 33% Kawan Renergy Berhad (KLSE:KENERGY) Shares Are Not Flying Under The Radar

KLSE:KENERGY
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Kawan Renergy Berhad (KLSE:KENERGY) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, when almost half of the companies in Malaysia's Machinery industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Kawan Renergy Berhad as a stock probably not worth researching with its 3.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Kawan Renergy Berhad

ps-multiple-vs-industry
KLSE:KENERGY Price to Sales Ratio vs Industry December 22nd 2024

What Does Kawan Renergy Berhad's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Kawan Renergy Berhad's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Kawan Renergy Berhad will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Kawan Renergy Berhad would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 10% 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 77% 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.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 36% over the next year. That's shaping up to be materially higher than the 22% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Kawan Renergy Berhad's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Kawan Renergy Berhad shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 Kawan Renergy Berhad's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Kawan Renergy Berhad (1 doesn't sit too well with us!) that you should be aware of.

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).

Valuation is complex, but we're here to simplify it.

Discover if Kawan Renergy Berhad might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.

About KLSE:KENERGY

Kawan Renergy Berhad

An investment holding company, designs, fabricates, installs, and commissions industrial process equipment, process plants, and renewable energy and co-generation plants in Malaysia, Indonesia, Singapore, Japan, New Zealand, South Africa, and Germany.

Exceptional growth potential with excellent balance sheet.