Petra Energy Berhad (KLSE:PENERGY) Doing What It Can To Lift Shares

With a median price-to-sales (or "P/S") ratio of close to 1x in the Energy Services industry in Malaysia, you could be forgiven for feeling indifferent about Petra Energy Berhad's (KLSE:PENERGY) P/S ratio of 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Petra Energy Berhad

How Petra Energy Berhad Has Been Performing

For instance, Petra Energy Berhad's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability 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 Petra Energy Berhad's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Petra Energy Berhad's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 33%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 5.2% shows it's a great look while it lasts.

With this in mind, we find it intriguing that Petra Energy Berhad's P/S matches its industry peers. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

What Does Petra Energy Berhad's P/S Mean For Investors?

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.

As mentioned previously, Petra Energy Berhad currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. The fact that the company's relative performance has not provided a kick to the share price suggests that some investors are anticipating revenue instability.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Petra Energy Berhad (1 is a bit unpleasant) you should be aware of.

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.