Sentiment Still Eluding WCE Holdings Berhad (KLSE:WCEHB)

It's not a stretch to say that WCE Holdings Berhad's (KLSE:WCEHB) price-to-sales (or "P/S") ratio of 3.9x right now seems quite "middle-of-the-road" for companies in the Infrastructure industry in Malaysia, where the median P/S ratio is around 3.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for WCE Holdings Berhad

How WCE Holdings Berhad Has Been Performing

WCE Holdings Berhad has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. 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.

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 WCE Holdings Berhad's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like WCE Holdings Berhad's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 84% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that WCE Holdings Berhad's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't quite envision WCE Holdings Berhad's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for WCE Holdings Berhad (1 is concerning) you should be aware of.

If you're unsure about the strength of WCE Holdings 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.