Getting In Cheap On Top Glove Corporation Bhd. (KLSE:TOPGLOV) Might Be Difficult

With a price-to-sales (or "P/S") ratio of 4.5x Top Glove Corporation Bhd. (KLSE:TOPGLOV) may be sending bearish signals at the moment, given that almost half of all Medical Equipment companies in Malaysia have P/S ratios under 3.4x and even P/S lower than 1.2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Top Glove Corporation Bhd

What Does Top Glove Corporation Bhd's Recent Performance Look Like?

There hasn't been much to differentiate Top Glove Corporation Bhd's and the industry's retreating revenue lately. It might be that many expect the company's revenue to strengthen positively despite the tough industry conditions, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

Top Glove Corporation Bhd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 22%. As a result, revenue from three years ago have also fallen 88% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 76% over the next year. With the industry only predicted to deliver 20%, the company is positioned for a stronger revenue result.

With this information, we can see why Top Glove Corporation Bhd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Top Glove Corporation Bhd 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about this 1 warning sign we've spotted with Top Glove Corporation Bhd.

If these risks are making you reconsider your opinion on Top Glove Corporation Bhd, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com