Hume Cement Industries Berhad (KLSE:HUMEIND) Not Lagging Industry On Growth Or Pricing

When you see that almost half of the companies in the Basic Materials industry in Malaysia have price-to-sales ratios (or "P/S") below 1.2x, Hume Cement Industries Berhad (KLSE:HUMEIND) looks to be giving off some sell signals with its 2.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Hume Cement Industries Berhad

What Does Hume Cement Industries Berhad's P/S Mean For Shareholders?

There hasn't been much to differentiate Hume Cement Industries Berhad's and the industry's revenue growth lately. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Hume Cement Industries Berhad will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Hume Cement Industries Berhad's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. The latest three year period has also seen an excellent 111% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 19% during the coming year according to the only analyst following the company. With the rest of the industry predicted to shrink by 2.8%, that would be a fantastic result.

With this information, we can see why Hume Cement Industries Berhad is trading at such a high P/S compared to the industry. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

The Key Takeaway

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.

We can see that Hume Cement Industries Berhad maintains its high P/S on the strength of its forecast growth potentially beating a struggling industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Questions could still raised over whether this level of outperformance can continue in the context of a a tumultuous industry climate. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Hume Cement Industries Berhad that you should be aware of.

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.

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