Investors Give MMAG Holdings Berhad (KLSE:MMAG) Shares A 87% Hiding

MMAG Holdings Berhad (KLSE:MMAG) shareholders that were waiting for something to happen have been dealt a blow with a 87% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

Following the heavy fall in price, given about half the companies operating in Malaysia's IT industry have price-to-sales ratios (or "P/S") above 1.4x, you may consider MMAG Holdings Berhad as an attractive investment with its 0.2x P/S ratio. 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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See our latest analysis for MMAG Holdings Berhad

How MMAG Holdings Berhad Has Been Performing

MMAG Holdings Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite 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 MMAG Holdings Berhad will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

MMAG 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.

Retrospectively, the last year delivered an exceptional 71% gain to the company's top line. Pleasingly, revenue has also lifted 173% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 8.5%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that MMAG Holdings Berhad is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

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

MMAG Holdings Berhad's recently weak share price has pulled its P/S back below other IT companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of MMAG Holdings Berhad revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for MMAG Holdings Berhad (1 can't be ignored) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.