Slammed 26% Warisan TC Holdings Berhad (KLSE:WARISAN) Screens Well Here But There Might Be A Catch

Warisan TC Holdings Berhad (KLSE:WARISAN) shares have had a horrible month, losing 26% after a relatively good period beforehand. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Since its price has dipped substantially, considering around half the companies operating in Malaysia's Industrials industry have price-to-sales ratios (or "P/S") above 0.9x, you may consider Warisan TC Holdings Berhad as an solid investment opportunity with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Warisan TC Holdings Berhad

What Does Warisan TC Holdings Berhad's P/S Mean For Shareholders?

The revenue growth achieved at Warisan TC Holdings Berhad over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Warisan TC Holdings Berhad will help you shine a light on its historical performance.

How Is Warisan TC Holdings Berhad's Revenue Growth Trending?

Warisan TC Holdings Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. Pleasingly, revenue has also lifted 52% 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.

This is in contrast to the rest of the industry, which is expected to grow by 8.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Warisan TC Holdings Berhad's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Warisan TC Holdings Berhad's P/S Mean For Investors?

Warisan TC Holdings Berhad's P/S has taken a dip along with its share price. 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.

Our examination of Warisan TC Holdings Berhad revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Warisan TC Holdings Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.