JF Technology Berhad's (KLSE:JFTECH) 35% Price Boost Is Out Of Tune With Revenues

JF Technology Berhad (KLSE:JFTECH) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

After such a large jump in price, given around half the companies in Malaysia's Semiconductor industry have price-to-sales ratios (or "P/S") below 3.1x, you may consider JF Technology Berhad as a stock to avoid entirely with its 10.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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See our latest analysis for JF Technology Berhad

How Has JF Technology Berhad Performed Recently?

The revenue growth achieved at JF Technology Berhad over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 JF Technology Berhad's earnings, revenue and cash flow.

How Is JF Technology Berhad's Revenue Growth Trending?

In order to justify its P/S ratio, JF Technology Berhad would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 7.7% gain to the company's revenues. Still, lamentably revenue has fallen 1.1% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 9.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that JF Technology Berhad is trading at a P/S higher than the industry. 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.

The Bottom Line On JF Technology Berhad's P/S

The strong share price surge has lead to JF Technology Berhad's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that JF Technology Berhad currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It is also worth noting that we have found 2 warning signs for JF Technology Berhad (1 is concerning!) that you need to take into consideration.

If you're unsure about the strength of JF Technology 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.