Revenues Tell The Story For WMG Holdings Bhd. (KLSE:WMG) As Its Stock Soars 46%

WMG Holdings Bhd. (KLSE:WMG) shares have had a really impressive month, gaining 46% after a shaky period beforehand. This latest share price bounce rounds out a remarkable 421% gain over the last twelve months.

Since its price has surged higher, when almost half of the companies in Malaysia's Trade Distributors industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider WMG Holdings Bhd as a stock probably not worth researching with its 2.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for WMG Holdings Bhd

How WMG Holdings Bhd Has Been Performing

Recent times have been quite advantageous for WMG Holdings Bhd as its revenue has been rising very briskly. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as WMG Holdings Bhd's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 71%. The latest three year period has also seen an excellent 155% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 6.0%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why WMG Holdings Bhd's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On WMG Holdings Bhd's P/S

The large bounce in WMG Holdings Bhd's shares has lifted the company's P/S handsomely. 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.

We've established that WMG Holdings Bhd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for WMG Holdings Bhd that you should be aware of.

If these risks are making you reconsider your opinion on WMG Holdings Bhd, 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.