EA Holdings Berhad (KLSE:EAH) Stock Catapults 100% Though Its Price And Business Still Lag The Industry

The EA Holdings Berhad (KLSE:EAH) share price has done very well over the last month, posting an excellent gain of 100%. Looking back a bit further, it's encouraging to see the stock is up 100% in the last year.

Even after such a large jump in price, when close to half the companies operating in Malaysia's IT industry have price-to-sales ratios (or "P/S") above 2x, you may still consider EA Holdings Berhad as an enticing stock to check out with its 1.2x 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 limited.

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Check out our latest analysis for EA Holdings Berhad

What Does EA Holdings Berhad's P/S Mean For Shareholders?

Revenue has risen firmly for EA Holdings Berhad recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on EA Holdings Berhad will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For EA Holdings Berhad?

There's an inherent assumption that a company should underperform the industry for P/S ratios like EA Holdings Berhad's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. As a result, it also grew revenue by 22% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 9.5% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why EA Holdings Berhad's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does EA Holdings Berhad's P/S Mean For Investors?

The latest share price surge wasn't enough to lift EA Holdings Berhad's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

In line with expectations, EA Holdings Berhad maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It is also worth noting that we have found 2 warning signs for EA Holdings Berhad (1 makes us a bit uncomfortable!) that you need to take into consideration.

If these risks are making you reconsider your opinion on EA Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.