A Piece Of The Puzzle Missing From Sedania Innovator Berhad's (KLSE:SEDANIA) Share Price

When you see that almost half of the companies in the Telecom industry in Malaysia have price-to-sales ratios (or "P/S") above 1.3x, Sedania Innovator Berhad (KLSE:SEDANIA) looks to be giving off some buy signals with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Sedania Innovator Berhad

What Does Sedania Innovator Berhad's P/S Mean For Shareholders?

Sedania Innovator Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Sedania Innovator Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Sedania Innovator Berhad would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 42% last year. Pleasingly, revenue has also lifted 75% 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 recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.9% shows it's noticeably more attractive.

With this information, we find it odd that Sedania Innovator 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 Sedania Innovator Berhad's P/S

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're very surprised to see Sedania Innovator Berhad currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Sedania Innovator Berhad (including 1 which is significant).

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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.