More Unpleasant Surprises Could Be In Store For Artroniq Berhad's (KLSE:ARTRONIQ) Shares After Tumbling 42%

Artroniq Berhad (KLSE:ARTRONIQ) shareholders that were waiting for something to happen have been dealt a blow with a 42% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Artroniq Berhad's P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in Malaysia is also close to 1.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Artroniq Berhad

How Has Artroniq Berhad Performed Recently?

As an illustration, revenue has deteriorated at Artroniq Berhad over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Artroniq Berhad will help you shine a light on its historical performance.

How Is Artroniq Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, Artroniq Berhad would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 62% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 9.3% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 0.5% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Artroniq Berhad is trading at a fairly similar P/S compared to 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 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 Artroniq Berhad's P/S?

Artroniq Berhad's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

The fact that Artroniq Berhad currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 4 warning signs for Artroniq Berhad you should be aware of, and 1 of them is significant.

If these risks are making you reconsider your opinion on Artroniq 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.