WCT Holdings Berhad's (KLSE:WCT) Shares Climb 46% But Its Business Is Yet to Catch Up

Despite an already strong run, WCT Holdings Berhad (KLSE:WCT) shares have been powering on, with a gain of 46% in the last thirty days. The last 30 days bring the annual gain to a very sharp 89%.

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 0.6x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Malaysia is also close to 1x. 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.

See our latest analysis for WCT Holdings Berhad

What Does WCT Holdings Berhad's Recent Performance Look Like?

While the industry has experienced revenue growth lately, WCT Holdings Berhad's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.0%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. 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 9.9% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 13%, 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. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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 Bottom Line On WCT Holdings Berhad's P/S

Its shares have lifted substantially and now WCT Holdings Berhad's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that WCT Holdings Berhad's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for WCT Holdings Berhad you should be aware of, and 1 of them shouldn't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.