A Piece Of The Puzzle Missing From Quality Concrete Holdings Berhad's (KLSE:QUALITY) 29% Share Price Climb

Quality Concrete Holdings Berhad (KLSE:QUALITY) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, when close to half the companies operating in Malaysia's Basic Materials industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Quality Concrete Holdings Berhad as an enticing stock to check out with its 0.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Quality Concrete Holdings Berhad

What Does Quality Concrete Holdings Berhad's Recent Performance Look Like?

For example, consider that Quality Concrete Holdings Berhad's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Quality Concrete Holdings Berhad will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Quality Concrete Holdings Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.0%. As a result, revenue from three years ago have also fallen 1.0% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 2.4% shows the industry is even less attractive on an annualised basis.

With this information, it's perhaps strange but not a major surprise that Quality Concrete Holdings Berhad is trading at a lower P/S in comparison. There's no guarantee the P/S has found a floor yet with recent revenue going backwards, despite the industry heading down even harder. There is still potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Final Word

Despite Quality Concrete Holdings Berhad's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Quality Concrete Holdings Berhad revealed its narrower three-year contraction in revenue isn't contributing to its P/S anywhere near as much as we would have predicted, given the industry is set to shrink even more. There could be some major unobserved threats to revenue preventing the P/S ratio from matching this comparatively more attractive revenue performance. Perhaps there is some hesitation about the company's ability to stay its recent course and resist the broader industry turmoil. While recent medium-term revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Quality Concrete Holdings Berhad (1 makes us a bit uncomfortable) 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