Slammed 38% Oversea Enterprise Berhad (KLSE:OVERSEA) Screens Well Here But There Might Be A Catch

Oversea Enterprise Berhad (KLSE:OVERSEA) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that Oversea Enterprise Berhad's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Hospitality industry in Malaysia, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Oversea Enterprise Berhad

How Has Oversea Enterprise Berhad Performed Recently?

The revenue growth achieved at Oversea Enterprise Berhad over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Oversea Enterprise Berhad's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Oversea Enterprise Berhad?

In order to justify its P/S ratio, Oversea Enterprise Berhad would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. Pleasingly, revenue has also lifted 164% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 9.6% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Oversea Enterprise Berhad's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

With its share price dropping off a cliff, the P/S for Oversea Enterprise Berhad looks to be in line with the rest of the Hospitality industry. 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.

To our surprise, Oversea Enterprise 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. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Oversea Enterprise Berhad (1 is a bit unpleasant!) that you need to take into consideration.

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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.