Optimistic Investors Push WCT Holdings Berhad (KLSE:WCT) Shares Up 52% But Growth Is Lacking

WCT Holdings Berhad (KLSE:WCT) shares have continued their recent momentum with a 52% gain in the last month alone. The annual gain comes to 175% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about WCT Holdings Berhad's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Malaysia is also close to 1.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for WCT Holdings Berhad

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

WCT Holdings Berhad hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on WCT Holdings Berhad.

How Is WCT Holdings Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, WCT Holdings Berhad would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 6.0% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 16%, which is noticeably more attractive.

In light of this, it's curious that WCT Holdings Berhad's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

WCT Holdings Berhad appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of WCT Holdings Berhad's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - WCT Holdings Berhad has 2 warning signs (and 1 which shouldn't be ignored) we think 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.

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