Even With A 30% Surge, Cautious Investors Are Not Rewarding Velocity Capital Partner Berhad's (KLSE:VELOCITY) Performance Completely

The Velocity Capital Partner Berhad (KLSE:VELOCITY) share price has done very well over the last month, posting an excellent gain of 30%. Notwithstanding the latest gain, the annual share price return of 8.3% isn't as impressive.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Velocity Capital Partner Berhad's P/S ratio of 1.4x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Malaysia is also close to 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Velocity Capital Partner Berhad

What Does Velocity Capital Partner Berhad's P/S Mean For Shareholders?

Velocity Capital Partner Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Velocity Capital Partner Berhad?

In order to justify its P/S ratio, Velocity Capital Partner Berhad would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 75% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 289% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Velocity Capital Partner Berhad is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Velocity Capital Partner Berhad's P/S Mean For Investors?

Velocity Capital Partner Berhad appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

To our surprise, Velocity Capital Partner Berhad revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You need to take note of risks, for example - Velocity Capital Partner Berhad has 2 warning signs (and 1 which can't be ignored) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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

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.