Revenues Working Against EA Holdings Berhad's (KLSE:EAH) Share Price Following 50% Dive

The EA Holdings Berhad (KLSE:EAH) share price has fared very poorly over the last month, falling by a substantial 50%. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Since its price has dipped substantially, EA Holdings Berhad's price-to-sales (or "P/S") ratio of 0.7x might make it look like a buy right now compared to the IT industry in Malaysia, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for EA Holdings Berhad

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

As an illustration, revenue has deteriorated at EA Holdings Berhad over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for EA Holdings 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 Any Revenue Growth Forecasted For EA Holdings Berhad?

EA Holdings Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 18% shows it's noticeably less attractive.

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. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On EA Holdings Berhad's P/S

The southerly movements of EA Holdings Berhad's shares means its P/S is now sitting at a pretty low level. 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's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with EA Holdings Berhad, and understanding these should be part of your investment process.

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.