Kossan Rubber Industries Bhd (KLSE:KOSSAN) Shares Slammed 30% But Getting In Cheap Might Be Difficult Regardless

To the annoyance of some shareholders, Kossan Rubber Industries Bhd (KLSE:KOSSAN) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 5.0% over that longer period.

Although its price has dipped substantially, there still wouldn't be many who think Kossan Rubber Industries Bhd's price-to-sales (or "P/S") ratio of 2.3x is worth a mention when the median P/S in Malaysia's Medical Equipment industry is similar at about 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Kossan Rubber Industries Bhd

How Kossan Rubber Industries Bhd Has Been Performing

Kossan Rubber Industries Bhd could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Kossan Rubber Industries Bhd will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

Kossan Rubber Industries Bhd'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.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 71% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 12% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 12% each year, which is not materially different.

With this in mind, it makes sense that Kossan Rubber Industries Bhd's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Kossan Rubber Industries Bhd's P/S Mean For Investors?

Kossan Rubber Industries Bhd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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 seen that Kossan Rubber Industries Bhd maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

It is also worth noting that we have found 2 warning signs for Kossan Rubber Industries Bhd (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of Kossan Rubber Industries Bhd'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.