VETECE Holdings Berhad (KLSE:VTC) Looks Just Right With A 30% Price Jump

VETECE Holdings Berhad (KLSE:VTC) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, you could be forgiven for thinking VETECE Holdings Berhad is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.6x, considering almost half the companies in Malaysia's IT industry have P/S ratios below 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for VETECE Holdings Berhad

How Has VETECE Holdings Berhad Performed Recently?

Recent times have been quite advantageous for VETECE Holdings Berhad as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For VETECE Holdings Berhad?

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

Retrospectively, the last year delivered an exceptional 126% gain to the company's top line. Pleasingly, revenue has also lifted 120% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 11% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why VETECE Holdings Berhad's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does VETECE Holdings Berhad's P/S Mean For Investors?

The large bounce in VETECE Holdings Berhad's shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that VETECE Holdings Berhad maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware VETECE Holdings Berhad is showing 5 warning signs in our investment analysis, and 2 of those are potentially serious.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.