WMG Holdings Bhd. (KLSE:WMG) Looks Just Right With A 27% Price Jump

WMG Holdings Bhd. (KLSE:WMG) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 200% in the last year.

After such a large jump in price, you could be forgiven for thinking WMG Holdings Bhd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2x, considering almost half the companies in Malaysia's Trade Distributors industry have P/S ratios below 0.6x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for WMG Holdings Bhd

What Does WMG Holdings Bhd's Recent Performance Look Like?

Recent times have been quite advantageous for WMG Holdings Bhd as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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 WMG Holdings Bhd's earnings, revenue and cash flow.

How Is WMG Holdings Bhd's Revenue Growth Trending?

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 59%. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 6.9% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's understandable that WMG Holdings Bhd's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does WMG Holdings Bhd's P/S Mean For Investors?

WMG Holdings Bhd's P/S is on the rise since its shares have risen strongly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that WMG Holdings Bhd can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you settle on your opinion, we've discovered 2 warning signs for WMG Holdings Bhd (1 is significant!) that you should be aware of.

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.