Investors Give Farlim Group (Malaysia) Bhd. (KLSE:FARLIM) Shares A 27% Hiding

Farlim Group (Malaysia) Bhd. (KLSE:FARLIM) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

Following the heavy fall in price, when close to half the companies operating in Malaysia's Real Estate industry have price-to-sales ratios (or "P/S") above 1.5x, you may consider Farlim Group (Malaysia) Bhd as an enticing stock to check out with its 0.5x 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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See our latest analysis for Farlim Group (Malaysia) Bhd

How Farlim Group (Malaysia) Bhd Has Been Performing

Recent times have been quite advantageous for Farlim Group (Malaysia) Bhd as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Farlim Group (Malaysia) Bhd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Farlim Group (Malaysia) Bhd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Farlim Group (Malaysia) Bhd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Farlim Group (Malaysia) Bhd's to be considered reasonable.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 9.7%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Farlim Group (Malaysia) Bhd's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Farlim Group (Malaysia) Bhd's recently weak share price has pulled its P/S back below other Real Estate companies. 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.

We're very surprised to see Farlim Group (Malaysia) Bhd currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 2 warning signs for Farlim Group (Malaysia) Bhd that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.