Even With A 84% Surge, Cautious Investors Are Not Rewarding Cabnet Holdings Berhad's (KLSE:CABNET) Performance Completely

Cabnet Holdings Berhad (KLSE:CABNET) shareholders would be excited to see that the share price has had a great month, posting a 84% gain and recovering from prior weakness. The last month tops off a massive increase of 124% in the last year.

In spite of the firm bounce in price, considering around half the companies operating in Malaysia's Commercial Services industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Cabnet Holdings Berhad as an solid investment opportunity with its 0.4x 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 limited.

See our latest analysis for Cabnet Holdings Berhad

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

Recent times have been quite advantageous for Cabnet Holdings Berhad as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Cabnet Holdings Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Cabnet Holdings Berhad's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Cabnet Holdings Berhad's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 140%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Cabnet Holdings Berhad is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Cabnet Holdings Berhad's P/S?

Cabnet Holdings Berhad's stock price has surged recently, but its but its P/S still remains modest. 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're very surprised to see Cabnet Holdings Berhad currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Cabnet Holdings Berhad (2 don't sit too well with us!) that you need to be mindful 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.

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