Iconic Worldwide Berhad (KLSE:ICONIC) Stock Rockets 53% As Investors Are Less Pessimistic Than Expected

Iconic Worldwide Berhad (KLSE:ICONIC) shareholders have had their patience rewarded with a 53% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 4.5% isn't as impressive.

Following the firm bounce in price, when almost half of the companies in Malaysia's Hospitality industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Iconic Worldwide Berhad as a stock not worth researching with its 4.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Iconic Worldwide Berhad

How Iconic Worldwide Berhad Has Been Performing

As an illustration, revenue has deteriorated at Iconic Worldwide Berhad over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Iconic Worldwide Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Iconic Worldwide Berhad?

Iconic Worldwide Berhad's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. As a result, revenue from three years ago have also fallen 36% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 4.1% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Iconic Worldwide 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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Iconic Worldwide Berhad's P/S?

Iconic Worldwide Berhad's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Iconic Worldwide Berhad revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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 the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Iconic Worldwide Berhad (3 are a bit unpleasant) you should be aware of.

If you're unsure about the strength of Iconic Worldwide 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.