Iskandar Waterfront City Berhad's (KLSE:IWCITY) Shares Climb 94% But Its Business Is Yet to Catch Up

Despite an already strong run, Iskandar Waterfront City Berhad (KLSE:IWCITY) shares have been powering on, with a gain of 94% in the last thirty days. The annual gain comes to 175% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in Malaysia's Real Estate industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Iskandar Waterfront City Berhad as a stock to avoid entirely with its 6.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Iskandar Waterfront City Berhad

What Does Iskandar Waterfront City Berhad's P/S Mean For Shareholders?

Iskandar Waterfront City Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Iskandar Waterfront City Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Iskandar Waterfront City Berhad?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Iskandar Waterfront City Berhad's to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. However, this wasn't enough as the latest three year period has seen the company endure a nasty 36% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 5.0% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Iskandar Waterfront City Berhad's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very 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 Does Iskandar Waterfront City Berhad's P/S Mean For Investors?

Iskandar Waterfront City Berhad's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Iskandar Waterfront City Berhad currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Iskandar Waterfront City Berhad (of which 1 is a bit unpleasant!) you should know about.

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.