IFCA MSC Berhad's (KLSE:IFCAMSC) 89% Price Boost Is Out Of Tune With Revenues

IFCA MSC Berhad (KLSE:IFCAMSC) shares have continued their recent momentum with a 89% gain in the last month alone. The last month tops off a massive increase of 189% in the last year.

Since its price has surged higher, IFCA MSC Berhad may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 5.8x, since almost half of all companies in the Software in Malaysia have P/S ratios under 4.4x and even P/S lower than 1.7x are not unusual. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for IFCA MSC Berhad

What Does IFCA MSC Berhad's P/S Mean For Shareholders?

It looks like revenue growth has deserted IFCA MSC Berhad recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for IFCA MSC Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is IFCA MSC Berhad's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as IFCA MSC Berhad's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 3.1% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 24% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that IFCA MSC Berhad's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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.

What We Can Learn From IFCA MSC Berhad's P/S?

The large bounce in IFCA MSC Berhad's shares has lifted the company's P/S handsomely. 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.

We've established that IFCA MSC Berhad currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you take the next step, you should know about the 3 warning signs for IFCA MSC Berhad (1 makes us a bit uncomfortable!) that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com