More Unpleasant Surprises Could Be In Store For Widad Group Berhad's (KLSE:WIDAD) Shares After Tumbling 27%

Widad Group Berhad (KLSE:WIDAD) shares have had a horrible month, losing 27% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 92% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Widad Group Berhad's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Construction industry in Malaysia, where the median P/S ratio is around 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Widad Group Berhad

What Does Widad Group Berhad's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Widad Group Berhad over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Widad Group Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Widad Group Berhad?

Widad Group Berhad's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. Still, the latest three year period has seen an excellent 48% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 19% shows it's noticeably less attractive.

With this information, we find it interesting that Widad Group Berhad is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Widad Group Berhad looks to be in line with the rest of the Construction industry. 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 Widad Group Berhad revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Widad Group Berhad (at least 3 which can't be ignored), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Widad Group Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.