Not Many Are Piling Into S & F Capital Berhad (KLSE:S&FCAP) Just Yet

S & F Capital Berhad's (KLSE:S&FCAP) price-to-sales (or "P/S") ratio of 0.7x might make it look like a buy right now compared to the Real Estate industry in Malaysia, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for S & F Capital Berhad

How Has S & F Capital Berhad Performed Recently?

With revenue growth that's exceedingly strong of late, S & F Capital Berhad has been doing very well. 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 S & F Capital Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 S & F Capital Berhad's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For S & F Capital Berhad?

In order to justify its P/S ratio, S & F Capital Berhad would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 65% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 189% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it odd that S & F Capital Berhad is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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 S & F Capital Berhad revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for S & F Capital Berhad you should be aware of.

If you're unsure about the strength of S & F Capital Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.