Market Cool On Parlo Berhad's (KLSE:PARLO) Revenues Pushing Shares 30% Lower

Parlo Berhad (KLSE:PARLO) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 68% loss during that time.

Following the heavy fall in price, considering around half the companies operating in Malaysia's Hospitality industry have price-to-sales ratios (or "P/S") above 1.3x, you may consider Parlo Berhad as an solid investment opportunity with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Parlo Berhad

How Has Parlo Berhad Performed Recently?

The recent revenue growth at Parlo Berhad would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform 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 out of favour.

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

How Is Parlo Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, Parlo Berhad would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.0%. This was backed up an excellent period prior to see revenue up by 258% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 8.4% 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 odd that Parlo Berhad is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

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

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

We're very surprised to see Parlo 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. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Parlo Berhad you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.