A Piece Of The Puzzle Missing From Kimlun Corporation Berhad's (KLSE:KIMLUN) 28% Share Price Climb

Despite an already strong run, Kimlun Corporation Berhad (KLSE:KIMLUN) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 124% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it would still be understandable if you think Kimlun Corporation Berhad is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.7x, considering almost half the companies in Malaysia's Construction industry have P/S ratios above 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Kimlun Corporation Berhad

How Kimlun Corporation Berhad Has Been Performing

Recent times haven't been great for Kimlun Corporation Berhad as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 17%. The latest three year period has also seen a 16% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 44% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this information, we find it odd that Kimlun Corporation Berhad is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Kimlun Corporation Berhad's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

To us, it seems Kimlun Corporation Berhad currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Kimlun Corporation Berhad that you should be aware of.

If you're unsure about the strength of Kimlun Corporation Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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