Revenues Tell The Story For Paragon Globe Berhad (KLSE:PGLOBE) As Its Stock Soars 27%

Paragon Globe Berhad (KLSE:PGLOBE) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 63% in the last year.

After such a large jump in price, when almost half of the companies in Malaysia's Trade Distributors industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider Paragon Globe Berhad as a stock probably not worth researching with its 2.6x 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 Paragon Globe Berhad

How Paragon Globe Berhad Has Been Performing

With revenue growth that's exceedingly strong of late, Paragon Globe Berhad has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Paragon Globe Berhad's earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered an exceptional 140% gain to the company's top line. The latest three year period has also seen an excellent 141% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 3.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Paragon Globe 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

Paragon Globe 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 Paragon Globe Berhad revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Plus, you should also learn about these 3 warning signs we've spotted with Paragon Globe Berhad (including 2 which are significant).

If you're unsure about the strength of Paragon Globe 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.