Subdued Growth No Barrier To Sarawak Consolidated Industries Berhad (KLSE:SCIB) With Shares Advancing 33%

Despite an already strong run, Sarawak Consolidated Industries Berhad (KLSE:SCIB) shares have been powering on, with a gain of 33% in the last thirty days. The last 30 days were the cherry on top of the stock's 467% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, given around half the companies in Malaysia's Building industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Sarawak Consolidated Industries Berhad as a stock to avoid entirely with its 3.9x 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 so lofty.

See our latest analysis for Sarawak Consolidated Industries Berhad

What Does Sarawak Consolidated Industries Berhad's Recent Performance Look Like?

Sarawak Consolidated Industries Berhad has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance is strong enough to outperform the industry, which has inflated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Sarawak Consolidated Industries Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Sarawak Consolidated Industries Berhad's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 6.7% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 61% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Sarawak Consolidated Industries Berhad's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Sarawak Consolidated Industries Berhad's P/S?

Sarawak Consolidated Industries Berhad's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Sarawak Consolidated Industries Berhad currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sarawak Consolidated Industries Berhad (at least 2 which can't be ignored), and understanding them should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.