Supermax Corporation Berhad's (KLSE:SUPERMX) 26% Cheaper Price Remains In Tune With Revenues

Supermax Corporation Berhad (KLSE:SUPERMX) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The last month has meant the stock is now only up 9.0% during the last year.

Although its price has dipped substantially, you could still be forgiven for thinking Supermax Corporation Berhad is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in Malaysia's Medical Equipment industry have P/S ratios below 2.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Supermax Corporation Berhad

What Does Supermax Corporation Berhad's P/S Mean For Shareholders?

Supermax Corporation Berhad could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Supermax Corporation Berhad?

The only time you'd be truly comfortable seeing a P/S as high as Supermax Corporation Berhad's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.4%. Still, lamentably revenue has fallen 87% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 36% over the next year. That's shaping up to be materially higher than the 20% growth forecast for the broader industry.

In light of this, it's understandable that Supermax Corporation Berhad's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

There's still some elevation in Supermax Corporation Berhad's P/S, even if the same can't be said for its share price recently. 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.

As we suspected, our examination of Supermax Corporation Berhad's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 1 warning sign for Supermax Corporation Berhad that we have uncovered.

If you're unsure about the strength of Supermax Corporation Berhad'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.