Investors Appear Satisfied With Paragon Globe Berhad's (KLSE:PGLOBE) Prospects As Shares Rocket 30%

Despite an already strong run, Paragon Globe Berhad (KLSE:PGLOBE) shares have been powering on, with a gain of 30% in the last thirty days. The annual gain comes to 239% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in Malaysia's Trade Distributors industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Paragon Globe Berhad as a stock not worth researching with its 3.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Paragon Globe Berhad

How Has Paragon Globe Berhad Performed Recently?

With revenue growth that's exceedingly strong of late, Paragon Globe Berhad has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. 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 Paragon Globe Berhad will help you shine a light on its historical performance.

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

In order to justify its P/S ratio, Paragon Globe Berhad would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Pleasingly, revenue has also lifted 187% in aggregate from three years ago, thanks to the last 12 months of explosive growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 6.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that Paragon Globe Berhad's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Paragon Globe Berhad's P/S?

Shares in Paragon Globe Berhad have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Paragon Globe Berhad maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Paragon Globe Berhad with six simple checks.

If these risks are making you reconsider your opinion on Paragon Globe 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.