SFP Tech Holdings Berhad's (KLSE:SFPTECH) 28% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

To the annoyance of some shareholders, SFP Tech Holdings Berhad (KLSE:SFPTECH) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

Even after such a large drop in price, you could still be forgiven for thinking SFP Tech Holdings Berhad is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in Malaysia's Machinery industry have P/S ratios below 1.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for SFP Tech Holdings Berhad

What Does SFP Tech Holdings Berhad's P/S Mean For Shareholders?

SFP Tech Holdings Berhad certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on SFP Tech Holdings Berhad will help you uncover what's on the horizon.

How Is SFP Tech Holdings Berhad's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like SFP Tech Holdings Berhad's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 38%. Pleasingly, revenue has also lifted 237% 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.

Looking ahead now, revenue is anticipated to climb by 8.0% each year during the coming three years according to the two analysts following the company. With the industry predicted to deliver 10% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that SFP Tech Holdings Berhad is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does SFP Tech Holdings Berhad's P/S Mean For Investors?

There's still some elevation in SFP Tech Holdings Berhad's P/S, even if the same can't be said for its share price recently. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for SFP Tech Holdings Berhad, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 3 warning signs for SFP Tech Holdings Berhad (2 can't be ignored!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on SFP Tech Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.