Investor Optimism Abounds Pos Malaysia Berhad (KLSE:POS) But Growth Is Lacking

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Logistics industry in Malaysia, you could be forgiven for feeling indifferent about Pos Malaysia Berhad's (KLSE:POS) P/S ratio of 0.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Pos Malaysia Berhad

How Has Pos Malaysia Berhad Performed Recently?

There hasn't been much to differentiate Pos Malaysia Berhad's and the industry's retreating revenue lately. The P/S ratio is probably moderate because investors think the company's revenue trend will continue to follow the rest of the industry. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues tracking the industry.

Want the full picture on analyst estimates for the company? Then our free report on Pos Malaysia Berhad will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

Pos Malaysia Berhad's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 21% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 7.9% as estimated by the only analyst watching the company. With the industry predicted to deliver 13% growth, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that Pos Malaysia Berhad's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our check of Pos Malaysia Berhad's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Pos Malaysia Berhad that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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