PLYTEC Holding Berhad (KLSE:PLYTEC) Screens Well But There Might Be A Catch

There wouldn't be many who think PLYTEC Holding Berhad's (KLSE:PLYTEC) price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S for the Trade Distributors industry in Malaysia is similar at about 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for PLYTEC Holding Berhad

How Has PLYTEC Holding Berhad Performed Recently?

With revenue growth that's inferior to most other companies of late, PLYTEC Holding Berhad has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on PLYTEC Holding Berhad.

Is There Some Revenue Growth Forecasted For PLYTEC Holding Berhad?

In order to justify its P/S ratio, PLYTEC Holding Berhad would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 4.2% gain to the company's revenues. Pleasingly, revenue has also lifted 45% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.4%, which is noticeably less attractive.

With this in consideration, we find it intriguing that PLYTEC Holding Berhad's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On PLYTEC Holding Berhad's P/S

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.

We've established that PLYTEC Holding Berhad currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Having said that, be aware PLYTEC Holding Berhad is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.