Leader Steel Holdings Berhad's (KLSE:LSTEEL) Business Is Yet to Catch Up With Its Share Price

It's not a stretch to say that Leader Steel Holdings Berhad's (KLSE:LSTEEL) price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" for companies in the Metals and Mining industry in Malaysia, where the median P/S ratio is around 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Leader Steel Holdings Berhad

How Leader Steel Holdings Berhad Has Been Performing

Revenue has risen firmly for Leader Steel Holdings Berhad recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Leader Steel Holdings Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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How Is Leader Steel Holdings Berhad's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Leader Steel Holdings Berhad's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 12% in total over the last three years. 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 8.2% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Leader Steel Holdings Berhad's P/S exceeds that of its industry peers. 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. 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 Leader Steel Holdings Berhad's 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.

The fact that Leader Steel Holdings 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. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - Leader Steel Holdings Berhad has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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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.