Subdued Growth No Barrier To Sarawak Consolidated Industries Berhad (KLSE:SCIB) With Shares Advancing 40%

Sarawak Consolidated Industries Berhad (KLSE:SCIB) shareholders are no doubt pleased to see that the share price has bounced 40% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 179% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Sarawak Consolidated Industries Berhad's price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S in Malaysia's Building industry is similar at about 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Sarawak Consolidated Industries Berhad

How Sarawak Consolidated Industries Berhad Has Been Performing

Revenue has risen at a steady rate over the last year for Sarawak Consolidated Industries Berhad, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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.

How Is Sarawak Consolidated Industries Berhad's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 6.7% last year. Still, lamentably revenue has fallen 61% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 10% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

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

What Does Sarawak Consolidated Industries Berhad's P/S Mean For Investors?

Its shares have lifted substantially and now Sarawak Consolidated Industries Berhad's P/S is back within range of the industry median. 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.

Our look at Sarawak Consolidated Industries Berhad revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You need to take note of risks, for example - Sarawak Consolidated Industries Berhad has 5 warning signs (and 3 which are potentially serious) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.