Top Glove Corporation Bhd.'s (KLSE:TOPGLOV) Popularity With Investors Is Clear

When you see that almost half of the companies in the Medical Equipment industry in Malaysia have price-to-sales ratios (or "P/S") below 2.8x, Top Glove Corporation Bhd. (KLSE:TOPGLOV) looks to be giving off some sell signals with its 3.7x P/S ratio. 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 Top Glove Corporation Bhd

How Has Top Glove Corporation Bhd Performed Recently?

With revenue that's retreating more than the industry's average of late, Top Glove Corporation Bhd has been very sluggish. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Top Glove Corporation Bhd would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 54% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 80% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 71% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Top Glove Corporation Bhd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Top Glove Corporation Bhd's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Top Glove Corporation Bhd'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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Top Glove Corporation Bhd with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.