Genetec Technology Berhad (KLSE:GENETEC) Stock's 32% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the Genetec Technology Berhad (KLSE:GENETEC) share price has dived 32% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.

After such a large drop in price, Genetec Technology Berhad's price-to-sales (or "P/S") ratio of 1.8x might make it look like a buy right now compared to the Semiconductor industry in Malaysia, where around half of the companies have P/S ratios above 2.9x and even P/S above 5x 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.

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See our latest analysis for Genetec Technology Berhad

How Genetec Technology Berhad Has Been Performing

While the industry has experienced revenue growth lately, Genetec Technology Berhad's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Genetec Technology Berhad.

Do Revenue Forecasts Match The Low P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. As a result, revenue from three years ago have also fallen 13% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 15% each year during the coming three years according to the two analysts following the company. That's shaping up to be similar to the 16% each year growth forecast for the broader industry.

In light of this, it's peculiar that Genetec Technology Berhad's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Genetec Technology Berhad's recently weak share price has pulled its P/S back below other Semiconductor 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.

Our examination of Genetec Technology Berhad's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Genetec Technology Berhad, and understanding them should be part of your investment process.

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.