Some Confidence Is Lacking In Focus Lumber Berhad (KLSE:FLBHD) As Shares Slide 37%

Focus Lumber Berhad (KLSE:FLBHD) shareholders that were waiting for something to happen have been dealt a blow with a 37% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 59% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Focus Lumber Berhad's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Forestry industry in Malaysia is also close to 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for Focus Lumber Berhad

How Focus Lumber Berhad Has Been Performing

With revenue growth that's exceedingly strong of late, Focus Lumber Berhad has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. 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 not quite in favour.

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

How Is Focus Lumber Berhad's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 50%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 33% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 8.6% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Focus Lumber Berhad's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Focus Lumber Berhad's P/S Mean For Investors?

Following Focus Lumber Berhad's share price tumble, its P/S is just clinging on to the industry median P/S. 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 find it unexpected that Focus Lumber Berhad trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 3 warning signs we've spotted with Focus Lumber Berhad .

If these risks are making you reconsider your opinion on Focus Lumber Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.