It's Down 29% But Sarawak Consolidated Industries Berhad (KLSE:SCIB) Could Be Riskier Than It Looks

Sarawak Consolidated Industries Berhad (KLSE:SCIB) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 57% loss during that time.

Although its price has dipped substantially, given about half the companies operating in Malaysia's Building industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Sarawak Consolidated Industries Berhad as an attractive investment with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Sarawak Consolidated Industries Berhad

How Sarawak Consolidated Industries Berhad Has Been Performing

The revenue growth achieved at Sarawak Consolidated Industries Berhad over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Sarawak Consolidated Industries Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Sarawak Consolidated Industries Berhad's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. Pleasingly, revenue has also lifted 39% 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.

This is in contrast to the rest of the industry, which is expected to grow by 6.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Sarawak Consolidated Industries Berhad's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Sarawak Consolidated Industries Berhad's recently weak share price has pulled its P/S back below other Building companies. 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.

Our examination of Sarawak Consolidated Industries Berhad revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Sarawak Consolidated Industries Berhad you should be aware of, and 1 of them can't be ignored.

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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.