Optimistic Investors Push Hextar Healthcare Berhad (KLSE:HEXCARE) Shares Up 47% But Growth Is Lacking

The Hextar Healthcare Berhad (KLSE:HEXCARE) share price has done very well over the last month, posting an excellent gain of 47%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.7% over the last year.

Since its price has surged higher, when almost half of the companies in Malaysia's Household Products industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Hextar Healthcare Berhad as a stock probably not worth researching with its 2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Hextar Healthcare Berhad

What Does Hextar Healthcare Berhad's Recent Performance Look Like?

For example, consider that Hextar Healthcare Berhad's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Hextar Healthcare Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Hextar Healthcare Berhad?

In order to justify its P/S ratio, Hextar Healthcare Berhad would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. This means it has also seen a slide in revenue over the longer-term as revenue is down 48% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 7.8% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Hextar Healthcare Berhad is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Hextar Healthcare Berhad's P/S?

The large bounce in Hextar Healthcare Berhad's shares has lifted the company's P/S handsomely. 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.

Our examination of Hextar Healthcare Berhad revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 3 warning signs for Hextar Healthcare Berhad (2 are potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Hextar Healthcare Berhad, 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.