Ocean Fresh Berhad (KLSE:OFB) Stock Rockets 31% But Many Are Still Ignoring The Company

Ocean Fresh Berhad (KLSE:OFB) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, given about half the companies operating in Malaysia's Food industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Ocean Fresh Berhad as an attractive investment with its 0.5x 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.

Check out our latest analysis for Ocean Fresh Berhad

What Does Ocean Fresh Berhad's P/S Mean For Shareholders?

Recent times have been pleasing for Ocean Fresh Berhad as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

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

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

Retrospectively, the last year delivered a decent 3.9% gain to the company's revenues. The latest three year period has also seen a 8.8% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 27% as estimated by the one analyst watching the company. With the industry only predicted to deliver 5.7%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Ocean Fresh Berhad's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Ocean Fresh Berhad's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

To us, it seems Ocean Fresh Berhad currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Ocean Fresh Berhad that you should be aware of.

If these risks are making you reconsider your opinion on Ocean Fresh Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.