Market Cool On G3 Global Berhad's (KLSE:G3) Revenues Pushing Shares 33% Lower

The G3 Global Berhad (KLSE:G3) share price has fared very poorly over the last month, falling by a substantial 33%. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

After such a large drop in price, when close to half the companies operating in Malaysia's Healthcare industry have price-to-sales ratios (or "P/S") above 2.9x, you may consider G3 Global Berhad as an enticing stock to check out with its 0.9x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for G3 Global Berhad

What Does G3 Global Berhad's P/S Mean For Shareholders?

Recent times have been quite advantageous for G3 Global Berhad as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 G3 Global Berhad's earnings, revenue and cash flow.

How Is G3 Global Berhad's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like G3 Global Berhad's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 137% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 3.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that G3 Global Berhad is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does G3 Global Berhad's P/S Mean For Investors?

The southerly movements of G3 Global Berhad's shares means its P/S is now sitting at a pretty low level. 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.

We're very surprised to see G3 Global Berhad currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for G3 Global Berhad (1 is concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on G3 Global 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.