Encorp Berhad's (KLSE:ENCORP) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

Those holding Encorp Berhad (KLSE:ENCORP) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Although its price has surged higher, it would still be understandable if you think Encorp Berhad is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.5x, considering almost half the companies in Malaysia's Real Estate industry have P/S ratios above 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Our free stock report includes 4 warning signs investors should be aware of before investing in Encorp Berhad. Read for free now.

See our latest analysis for Encorp Berhad

What Does Encorp Berhad's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Encorp Berhad over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Encorp Berhad's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Encorp Berhad?

The only time you'd be truly comfortable seeing a P/S as low as Encorp Berhad's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. The last three years don't look nice either as the company has shrunk revenue by 29% in aggregate. 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 6.9% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Encorp Berhad's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Encorp Berhad's P/S?

The latest share price surge wasn't enough to lift Encorp Berhad's P/S close to the industry median. 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.

It's no surprise that Encorp Berhad maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Encorp Berhad (at least 1 which is concerning), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.