Market Cool On Borneo Oil Berhad's (KLSE:BORNOIL) Revenues Pushing Shares 50% Lower

Borneo Oil Berhad (KLSE:BORNOIL) shareholders that were waiting for something to happen have been dealt a blow with a 50% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 67% share price decline.

After such a large drop in price, Borneo Oil Berhad may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Hospitality industry in Malaysia have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Borneo Oil Berhad

What Does Borneo Oil Berhad's P/S Mean For Shareholders?

For instance, Borneo Oil Berhad's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction 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 Any Revenue Growth Forecasted For Borneo Oil Berhad?

The only time you'd be truly comfortable seeing a P/S as low as Borneo Oil Berhad's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 34%. Even so, admirably revenue has lifted 36% 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.

When compared to the industry's one-year growth forecast of 3.4%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Borneo Oil Berhad's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Borneo Oil Berhad's P/S

The southerly movements of Borneo Oil Berhad's shares means its P/S is now sitting at a pretty low level. 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.

We're very surprised to see Borneo Oil Berhad currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Borneo Oil Berhad (2 are a bit unpleasant!) that you need to be mindful of.

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.