Fewer Investors Than Expected Jumping On Xin Hwa Holdings Berhad (KLSE:XINHWA)

With a price-to-sales (or "P/S") ratio of 0.3x Xin Hwa Holdings Berhad (KLSE:XINHWA) may be sending bullish signals at the moment, given that almost half of all the Transportation companies in Malaysia have P/S ratios greater than 2.2x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Xin Hwa Holdings Berhad

What Does Xin Hwa Holdings Berhad's P/S Mean For Shareholders?

Revenue has risen firmly for Xin Hwa Holdings Berhad recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Xin Hwa Holdings Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Xin Hwa Holdings Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. Pleasingly, revenue has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 5.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Xin Hwa Holdings Berhad's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Xin Hwa Holdings Berhad's P/S Mean For Investors?

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.

Our examination of Xin Hwa Holdings Berhad revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 4 warning signs for Xin Hwa Holdings Berhad (1 is concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Xin Hwa Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.