Investors Appear Satisfied With UWC Berhad's (KLSE:UWC) Prospects As Shares Rocket 42%

UWC Berhad (KLSE:UWC) shares have continued their recent momentum with a 42% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 76% in the last year.

Since its price has surged higher, given around half the companies in Malaysia's Machinery industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider UWC Berhad as a stock to avoid entirely with its 10.5x 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.

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View our latest analysis for UWC Berhad

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

Recent times have been advantageous for UWC Berhad as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. Revenue has also lifted 13% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.0% each year, which is noticeably less attractive.

With this information, we can see why UWC Berhad is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does UWC Berhad's P/S Mean For Investors?

The strong share price surge has lead to UWC Berhad's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of UWC Berhad's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for UWC Berhad (1 is significant) you should be aware of.

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.