Velocity Capital Partner Berhad (KLSE:VELOCITY) Stocks Shoot Up 89% But Its P/S Still Looks Reasonable

Despite an already strong run, Velocity Capital Partner Berhad (KLSE:VELOCITY) shares have been powering on, with a gain of 89% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 89% in the last year.

After such a large jump in price, when almost half of the companies in Malaysia's Consumer Durables industry have price-to-sales ratios (or "P/S") below 1x, you may consider Velocity Capital Partner Berhad as a stock probably not worth researching with its 1.9x 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.

View our latest analysis for Velocity Capital Partner Berhad

How Has Velocity Capital Partner Berhad Performed Recently?

Recent times have been quite advantageous for Velocity Capital Partner Berhad as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. 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 Velocity Capital Partner Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Velocity Capital Partner Berhad's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 33%. Pleasingly, revenue has also lifted 177% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why Velocity Capital Partner Berhad's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

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

The large bounce in Velocity Capital Partner Berhad's shares has lifted the company's P/S handsomely. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Velocity Capital Partner Berhad revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Velocity Capital Partner Berhad (1 is significant) you should be aware of.

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.