Investors Continue Waiting On Sidelines For Sapura Energy Berhad (KLSE:SAPNRG)

When you see that almost half of the companies in the Energy Services industry in Malaysia have price-to-sales ratios (or "P/S") above 0.7x, Sapura Energy Berhad (KLSE:SAPNRG) looks to be giving off some buy signals with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Sapura Energy Berhad

What Does Sapura Energy Berhad's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Sapura Energy Berhad has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Sapura Energy Berhad will help you uncover what's on the horizon.

How Is Sapura Energy Berhad's Revenue Growth Trending?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 7.6% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 2.1% as estimated by the two analysts watching the company. With the rest of the industry predicted to shrink by 12%, it's still an optimal result.

In light of this, the fact Sapura Energy Berhad's P/S sits below the majority of other companies is peculiar but certainly not shocking. Even though the company may outperform the industry, shrinking revenues are unlikely to lead to a stable P/S long-term. There's still potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Sapura Energy Berhad currently trades on a much lower than expected P/S since its revenue forecast is not as bad as the struggling industry. The P/S ratio may not align with the more favourable outlook due to the market pricing in potential revenue risks. Perhaps there is some hesitation about the company's ability to keep resisting the broader industry turmoil. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sapura Energy Berhad (at least 2 which make us uncomfortable), and understanding these should be part of your investment process.

If you're unsure about the strength of Sapura Energy 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.