Investors Still Aren't Entirely Convinced By W T K Holdings Berhad's (KLSE:WTK) Revenues Despite 30% Price Jump

W T K Holdings Berhad (KLSE:WTK) shareholders have had their patience rewarded with a 30% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 9.4% isn't as impressive.

Although its price has surged higher, given about half the companies operating in Malaysia's Forestry industry have price-to-sales ratios (or "P/S") above 0.9x, you may still consider W T K Holdings Berhad as an attractive investment with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for W T K Holdings Berhad

What Does W T K Holdings Berhad's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at W T K Holdings Berhad over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming 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 out of favour.

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

How Is W T K Holdings Berhad's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like W T K Holdings Berhad's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.8%. Even so, admirably revenue has lifted 45% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's about the same on an annualised basis.

With this information, we find it odd that W T K Holdings Berhad is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From W T K Holdings Berhad's P/S?

W T K Holdings Berhad's stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of W T K Holdings Berhad revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - W T K Holdings Berhad has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.