Revenues Not Telling The Story For IFCA MSC Berhad (KLSE:IFCAMSC) After Shares Rise 26%

Those holding IFCA MSC Berhad (KLSE:IFCAMSC) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 3.5% isn't as impressive.

Following the firm bounce in price, when almost half of the companies in Malaysia's Software industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider IFCA MSC Berhad as a stock probably not worth researching with its 2.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for IFCA MSC Berhad

What Does IFCA MSC Berhad's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, IFCA MSC Berhad has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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?

In order to justify its P/S ratio, IFCA MSC Berhad would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 33% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 23% shows it's noticeably less attractive.

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 good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

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

The large bounce in IFCA MSC Berhad's shares has lifted the company's P/S handsomely. 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 IFCA MSC Berhad revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Before you settle on your opinion, we've discovered 3 warning signs for IFCA MSC Berhad that you should be aware of.

If these risks are making you reconsider your opinion on IFCA MSC 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.