Pinning Down Federal International Holdings Berhad's (KLSE:FIHB) P/S Is Difficult Right Now

It's not a stretch to say that Federal International Holdings Berhad's (KLSE:FIHB) price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" for companies in the Consumer Durables industry in Malaysia, where the median P/S ratio is around 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Federal International Holdings Berhad

How Has Federal International Holdings Berhad Performed Recently?

For instance, Federal International Holdings 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 not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Federal International Holdings Berhad will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Federal International Holdings Berhad?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 30%. This means it has also seen a slide in revenue over the longer-term as revenue is down 39% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 6.3% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Federal International Holdings Berhad's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate 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 on the share price eventually.

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

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 look at Federal International Holdings Berhad revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - Federal International Holdings Berhad has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on Federal International Holdings Berhad, 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.