Classita Holdings Berhad (KLSE:CLASSITA) Stock Rockets 33% As Investors Are Less Pessimistic Than Expected

The Classita Holdings Berhad (KLSE:CLASSITA) share price has done very well over the last month, posting an excellent gain of 33%. The annual gain comes to 129% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies operating in Malaysia's Luxury industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider Classita Holdings Berhad as a stock to potentially avoid with its 1.7x 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.

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See our latest analysis for Classita Holdings Berhad

How Has Classita Holdings Berhad Performed Recently?

Revenue has risen firmly for Classita Holdings Berhad recently, which is pleasing to see. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Classita Holdings 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 Enough Revenue Growth Forecasted For Classita Holdings Berhad?

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

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. As a result, it also grew revenue by 6.4% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

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 concerning that Classita Holdings Berhad is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Classita Holdings Berhad's P/S Mean For Investors?

Classita Holdings Berhad's P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Classita Holdings Berhad revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Classita Holdings Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.