IQ Group Holdings Berhad (KLSE:IQGROUP) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies operating in the Electronic industry in Malaysia have price-to-sales ratios (or "P/S") above 1x, you may consider IQ Group Holdings Berhad (KLSE:IQGROUP) as an attractive investment with its 0.4x 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 limited.

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See our latest analysis for IQ Group Holdings Berhad

How Has IQ Group Holdings Berhad Performed Recently?

Revenue has risen at a steady rate over the last year for IQ Group Holdings Berhad, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on IQ Group Holdings Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as IQ Group Holdings Berhad's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 2.7%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 5.3% shows it's noticeably less attractive.

In light of this, it's understandable that IQ Group Holdings Berhad's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From IQ Group Holdings Berhad's P/S?

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.

In line with expectations, IQ Group Holdings Berhad maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You always need to take note of risks, for example - IQ Group Holdings Berhad has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on IQ Group Holdings 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.