Investors Still Aren't Entirely Convinced By Avillion Berhad's (KLSE:AVI) Revenues Despite 50% Price Jump

Avillion Berhad (KLSE:AVI) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 10.0% in the last twelve months.

Although its price has surged higher, it would still be understandable if you think Avillion Berhad is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.8x, considering almost half the companies in Malaysia's Hospitality industry have P/S ratios above 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

We've discovered 2 warning signs about Avillion Berhad. View them for free.

View our latest analysis for Avillion Berhad

How Avillion Berhad Has Been Performing

For example, consider that Avillion Berhad's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may 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 Avillion Berhad will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Avillion Berhad would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. Even so, admirably revenue has lifted 173% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 7.7% shows it's noticeably more attractive.

With this information, we find it odd that Avillion Berhad is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Avillion Berhad's share price climbing recently, its P/S still lags most other companies. 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 Avillion Berhad revealed its three-year revenue trends aren't boosting its P/S anywhere near 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 assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 2 warning signs for Avillion Berhad (1 is a bit unpleasant!) that you should be aware of.

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).

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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.