Vinvest Capital Holdings Berhad's (KLSE:VINVEST) Shares Climb 33% But Its Business Is Yet to Catch Up

The Vinvest Capital Holdings Berhad (KLSE:VINVEST) share price has done very well over the last month, posting an excellent gain of 33%. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

After such a large jump in price, given close to half the companies operating in Malaysia's Construction industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Vinvest Capital Holdings Berhad as a stock to potentially avoid with its 1.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Vinvest Capital Holdings Berhad

What Does Vinvest Capital Holdings Berhad's Recent Performance Look Like?

For example, consider that Vinvest Capital Holdings Berhad's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Vinvest Capital Holdings Berhad's earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered a frustrating 45% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 31% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 19% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Vinvest Capital Holdings Berhad is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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 Vinvest Capital Holdings Berhad's P/S?

Vinvest Capital Holdings Berhad's P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Vinvest Capital Holdings Berhad revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Vinvest Capital Holdings Berhad (2 can't be ignored!) that you need to be mindful of.

If you're unsure about the strength of Vinvest Capital Holdings Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.