Improved Revenues Required Before Eng Kah Corporation Berhad (KLSE:ENGKAH) Stock's 29% Jump Looks Justified

The Eng Kah Corporation Berhad (KLSE:ENGKAH) share price has done very well over the last month, posting an excellent gain of 29%. Unfortunately, despite the strong performance over the last month, the full year gain of 8.9% isn't as attractive.

Even after such a large jump in price, considering around half the companies operating in Malaysia's Personal Products industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Eng Kah Corporation Berhad as an solid investment opportunity with its 1.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Eng Kah Corporation Berhad

What Does Eng Kah Corporation Berhad's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Eng Kah Corporation Berhad over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Eng Kah Corporation Berhad's earnings, revenue and cash flow.

How Is Eng Kah Corporation Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, Eng Kah Corporation Berhad would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 9.6% decrease to the company's top line. As a result, revenue from three years ago have also fallen 4.4% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 9.4% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Eng Kah Corporation Berhad is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Eng Kah Corporation Berhad's P/S Mean For Investors?

Eng Kah Corporation Berhad's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Eng Kah Corporation Berhad revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 3 warning signs for Eng Kah Corporation Berhad (1 shouldn't be ignored!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.