Improved Revenues Required Before SaudiGold Group Berhad (KLSE:SG) Stock's 200% Jump Looks Justified

SaudiGold Group Berhad (KLSE:SG) shares have had a really impressive month, gaining 200% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Although its price has surged higher, when close to half the companies operating in Malaysia's Food industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider SaudiGold Group Berhad as an enticing stock to check out with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for SaudiGold Group Berhad

How Has SaudiGold Group Berhad Performed Recently?

It looks like revenue growth has deserted SaudiGold Group Berhad recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on SaudiGold Group Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 SaudiGold Group Berhad's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For SaudiGold Group Berhad?

The only time you'd be truly comfortable seeing a P/S as low as SaudiGold Group Berhad's is when the company's growth is on track to lag the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 6.0% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 2.4% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that SaudiGold Group Berhad is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On SaudiGold Group Berhad's P/S

SaudiGold Group Berhad's stock price has surged recently, but its but its P/S still remains modest. 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.

It's no surprise that SaudiGold Group Berhad maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for SaudiGold Group Berhad that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.