Reneuco Berhad (KLSE:RENEUCO) Shares May Have Slumped 28% But Getting In Cheap Is Still Unlikely

The Reneuco Berhad (KLSE:RENEUCO) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 63% loss during that time.

Even after such a large drop in price, you could still be forgiven for thinking Reneuco Berhad 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 Luxury industry have P/S ratios below 0.7x. 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.

Check out our latest analysis for Reneuco Berhad

How Reneuco Berhad Has Been Performing

As an illustration, revenue has deteriorated at Reneuco Berhad over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Reneuco 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 Reneuco Berhad's Revenue Growth Trending?

Reneuco Berhad's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 56%. As a result, revenue from three years ago have also fallen 64% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

In light of this, it's alarming that Reneuco Berhad's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Reneuco Berhad's P/S remain high even after its stock plunged. 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.

Our examination of Reneuco Berhad revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Reneuco Berhad (at least 4 which are a bit unpleasant), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Reneuco 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.

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