Revenues Working Against Eversendai Corporation Berhad's (KLSE:SENDAI) Share Price Following 25% Dive

Eversendai Corporation Berhad (KLSE:SENDAI) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The good news is that in the last year, the stock has shone bright like a diamond, gaining 241%.

After such a large drop in price, when close to half the companies operating in Malaysia's Construction industry have price-to-sales ratios (or "P/S") above 1x, you may consider Eversendai Corporation Berhad as an enticing stock to check out with its 0.2x 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 limited.

See our latest analysis for Eversendai Corporation Berhad

What Does Eversendai Corporation Berhad's P/S Mean For Shareholders?

Eversendai Corporation Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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 out of favour.

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

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

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

Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. Revenue has also lifted 30% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 19% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Eversendai Corporation Berhad's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Eversendai Corporation Berhad's P/S

Eversendai Corporation Berhad's P/S has taken a dip along with its 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.

In line with expectations, Eversendai Corporation Berhad maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You need to take note of risks, for example - Eversendai Corporation Berhad has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.