Harvest Miracle Capital Berhad's (KLSE:HM) Popularity With Investors Under Threat As Stock Sinks 26%

To the annoyance of some shareholders, Harvest Miracle Capital Berhad (KLSE:HM) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 65% loss during that time.

Although its price has dipped substantially, given close to half the companies operating in Malaysia's Electronic industry have price-to-sales ratios (or "P/S") below 1.2x, you may still consider Harvest Miracle Capital Berhad as a stock to potentially avoid with its 2.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Harvest Miracle Capital Berhad

What Does Harvest Miracle Capital Berhad's P/S Mean For Shareholders?

We'd have to say that with no tangible growth over the last year, Harvest Miracle Capital Berhad's revenue has been unimpressive. 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.

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 Harvest Miracle Capital Berhad's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

Harvest Miracle Capital Berhad's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 44% drop in revenue. 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 39% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Harvest Miracle Capital Berhad's P/S sits above the majority of other companies. 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Harvest Miracle Capital Berhad's P/S?

Harvest Miracle Capital Berhad's P/S remain high even after its stock plunged. 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 Harvest Miracle Capital Berhad revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 4 warning signs we've spotted with Harvest Miracle Capital Berhad (including 2 which shouldn't be ignored).

If you're unsure about the strength of Harvest Miracle Capital Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.