There's Reason For Concern Over Spring Art Holdings Berhad's (KLSE:SPRING) Price

It's not a stretch to say that Spring Art Holdings Berhad's (KLSE:SPRING) price-to-sales (or "P/S") ratio of 1.5x 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 1.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Spring Art Holdings Berhad

How Has Spring Art Holdings Berhad Performed Recently?

Recent times have been quite advantageous for Spring Art Holdings Berhad as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For Spring Art Holdings Berhad?

The only time you'd be comfortable seeing a P/S like Spring Art Holdings Berhad's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 46% last year. Revenue has also lifted 14% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Spring Art Holdings Berhad is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

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

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.

Our examination of Spring Art Holdings Berhad revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Spring Art Holdings Berhad (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

If you're unsure about the strength of Spring Art Holdings Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.