Some Shareholders Feeling Restless Over Gagasan Nadi Cergas Berhad's (KLSE:NADIBHD) P/S Ratio

There wouldn't be many who think Gagasan Nadi Cergas Berhad's (KLSE:NADIBHD) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Construction industry in Malaysia 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.

Check out our latest analysis for Gagasan Nadi Cergas Berhad

What Does Gagasan Nadi Cergas Berhad's Recent Performance Look Like?

Revenue has risen firmly for Gagasan Nadi Cergas Berhad recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Gagasan Nadi Cergas Berhad's earnings, revenue and cash flow.

How Is Gagasan Nadi Cergas Berhad's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Gagasan Nadi Cergas Berhad's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. Pleasingly, revenue has also lifted 34% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 19% shows it's noticeably less attractive.

In light of this, it's curious that Gagasan Nadi Cergas Berhad's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Gagasan Nadi Cergas Berhad's P/S?

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 Gagasan Nadi Cergas Berhad's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It is also worth noting that we have found 2 warning signs for Gagasan Nadi Cergas Berhad (1 is a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of Gagasan Nadi Cergas 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.