Cautious Investors Not Rewarding Wasco Berhad's (KLSE:WASCO) Performance Completely

There wouldn't be many who think Wasco Berhad's (KLSE:WASCO) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Energy Services industry in Malaysia is similar at about 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.

Check out our latest analysis for Wasco Berhad

How Wasco Berhad Has Been Performing

While the industry has experienced revenue growth lately, Wasco Berhad's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wasco Berhad.

How Is Wasco Berhad's Revenue Growth Trending?

Wasco Berhad's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 3.0%. Still, the latest three year period has seen an excellent 85% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue growth will be highly resilient over the next three years growing by 8.4% per year. With the rest of the industry predicted to shrink by 6.3% per annum, that would be a fantastic result.

With this in mind, we find it intriguing that Wasco Berhad's P/S trades in-line with its industry peers. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

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

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Wasco Berhad's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Wasco Berhad with six simple checks.

If you're unsure about the strength of Wasco 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.