What Borneo Oil Berhad's (KLSE:BORNOIL) 100% Share Price Gain Is Not Telling You

The Borneo Oil Berhad (KLSE:BORNOIL) share price has done very well over the last month, posting an excellent gain of 100%. Looking back a bit further, it's encouraging to see the stock is up 100% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Borneo Oil Berhad is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.9x, considering almost half the companies in Malaysia's Hospitality industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for Borneo Oil Berhad

What Does Borneo Oil Berhad's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Borneo Oil Berhad, which is generally not a bad outcome. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Borneo Oil 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?

In order to justify its P/S ratio, Borneo Oil Berhad would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.9%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 6.7% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

With this information, we find it concerning that Borneo Oil Berhad is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Borneo Oil Berhad's P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Borneo Oil Berhad currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 5 warning signs for Borneo Oil Berhad (3 make us uncomfortable!) that you should be aware 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.