Hartalega Holdings Berhad (KLSE:HARTA) Not Flying Under The Radar

When close to half the companies in the Medical Equipment industry in Malaysia have price-to-sales ratios (or "P/S") below 3x, you may consider Hartalega Holdings Berhad (KLSE:HARTA) as a stock to potentially avoid with its 4.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Hartalega Holdings Berhad

What Does Hartalega Holdings Berhad's P/S Mean For Shareholders?

Recent times have been more advantageous for Hartalega Holdings Berhad as its revenue hasn't fallen as much as the rest of the industry. The P/S ratio is probably high because investors think this comparatively better revenue performance will continue. While you'd prefer that its revenue trajectory turned around, you'd at least be hoping it remains less negative than other companies, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Hartalega Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Hartalega Holdings Berhad would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 1.1% decrease to the company's top line. As a result, revenue from three years ago have also fallen 80% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 41% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.

With this information, we can see why Hartalega Holdings Berhad is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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've established that Hartalega Holdings Berhad maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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 Hartalega Holdings Berhad with six simple checks.

If these risks are making you reconsider your opinion on Hartalega Holdings 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.