There's No Escaping EA Holdings Berhad's (KLSE:EAH) Muted Revenues Despite A 100% Share Price Rise

EA Holdings Berhad (KLSE:EAH) shareholders have had their patience rewarded with a 100% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 100% in the last year.

In spite of the firm bounce in price, it would still be understandable if you think EA Holdings Berhad is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1.2x, considering almost half the companies in Malaysia's IT industry have P/S ratios above 2x. 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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View our latest analysis for EA Holdings Berhad

What Does EA Holdings Berhad's Recent Performance Look Like?

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.

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 EA Holdings Berhad's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For EA Holdings Berhad?

The only time you'd be truly comfortable seeing a P/S as low as EA Holdings Berhad's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen a 22% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 9.5% shows it's noticeably less attractive.

With this information, we can see why EA Holdings Berhad is trading at a P/S lower than the industry. 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 latest share price surge wasn't enough to lift EA Holdings Berhad's P/S close to the industry median. 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.

Our examination of EA Holdings Berhad confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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 (at least 1 which is significant), 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.