Widad Group Berhad (KLSE:WIDAD) May Have Run Too Fast Too Soon With Recent 30% Price Plummet

The Widad Group Berhad (KLSE:WIDAD) share price has fared very poorly over the last month, falling by a substantial 30%. For any long-term shareholders, the last month ends a year to forget by locking in a 72% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Widad Group Berhad's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Malaysia is also close to 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Widad Group Berhad

How Has Widad Group Berhad Performed Recently?

For instance, Widad Group Berhad's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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.

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 Widad Group Berhad's earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. 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.

This is in contrast to the rest of the industry, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

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. 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.

We've established that Widad Group Berhad's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You should always think about risks. Case in point, we've spotted 4 warning signs for Widad Group Berhad you should be aware of, and 3 of them make us uncomfortable.

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.

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

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.