Optimistic Investors Push K-One Technology Berhad (KLSE:K1) Shares Up 75% But Growth Is Lacking

K-One Technology Berhad (KLSE:K1) shares have continued their recent momentum with a 75% gain in the last month alone. The last month tops off a massive increase of 103% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about K-One Technology Berhad's P/S ratio of 1.5x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Malaysia is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for K-One Technology Berhad

How Has K-One Technology Berhad Performed Recently?

It looks like revenue growth has deserted K-One Technology Berhad recently, which is not something to boast about. Perhaps the market believes the recent run-of-the-mill revenue performance isn't enough to outperform the industry, which has kept the P/S muted. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on K-One Technology Berhad will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For K-One Technology Berhad?

There's an inherent assumption that a company should be matching the industry for P/S ratios like K-One Technology Berhad's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 63% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 38% shows it's noticeably less attractive.

With this in mind, we find it intriguing that K-One Technology Berhad's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now K-One Technology Berhad's P/S is back within range of the industry median. 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 K-One Technology Berhad's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 3 warning signs for K-One Technology Berhad you should be aware of, and 2 of them are significant.

If these risks are making you reconsider your opinion on K-One Technology 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com