LFE Corporation Berhad's (KLSE:LFECORP) P/S Is Still On The Mark Following 29% Share Price Bounce

LFE Corporation Berhad (KLSE:LFECORP) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

After such a large jump in price, given close to half the companies operating in Malaysia's Construction industry have price-to-sales ratios (or "P/S") below 1x, you may consider LFE Corporation Berhad as a stock to potentially avoid with its 2.7x 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.

See our latest analysis for LFE Corporation Berhad

How LFE Corporation Berhad Has Been Performing

LFE Corporation Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on LFE Corporation Berhad will help you shine a light on its historical performance.

How Is LFE Corporation Berhad's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 208% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 33%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why LFE Corporation Berhad is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

The large bounce in LFE Corporation Berhad's shares has lifted the company's P/S handsomely. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that LFE Corporation Berhad maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for LFE Corporation Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on LFE Corporation 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.