Investors Still Aren't Entirely Convinced By Borneo Oil Berhad's (KLSE:BORNOIL) Revenues Despite 100% Price Jump

The Borneo Oil Berhad (KLSE:BORNOIL) share price has done very well over the last month, posting an excellent gain of 100%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

Although its price has surged higher, it's still not a stretch to say that Borneo Oil Berhad's price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" compared to the Hospitality industry in Malaysia, where the median P/S ratio is around 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Borneo Oil Berhad

How Has Borneo Oil Berhad Performed Recently?

As an illustration, revenue has deteriorated at Borneo Oil Berhad over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Borneo Oil Berhad's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Borneo Oil Berhad?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 34%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 36% in total over the last three years. 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 to the industry, which is only predicted to deliver 3.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Borneo Oil 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.

The Key Takeaway

Borneo Oil 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 It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To our surprise, Borneo Oil 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 - Borneo Oil Berhad has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

If you're unsure about the strength of Borneo Oil 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.

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