Malakoff Corporation Berhad's (KLSE:MALAKOF) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 0.5x Malakoff Corporation Berhad (KLSE:MALAKOF) is a stock worth checking out, seeing as almost half of all the Renewable Energy companies in Malaysia have P/S ratios greater than 2.2x and even P/S higher than 6x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Malakoff Corporation Berhad

How Has Malakoff Corporation Berhad Performed Recently?

While the industry has experienced revenue growth lately, Malakoff Corporation Berhad's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Malakoff Corporation Berhad.

Is There Any Revenue Growth Forecasted For Malakoff Corporation Berhad?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. Even so, admirably revenue has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 5.6% as estimated by the ten analysts watching the company. That's not great when the rest of the industry is expected to grow by 16%.

With this in consideration, we find it intriguing that Malakoff Corporation Berhad's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Malakoff Corporation Berhad's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's clear to see that Malakoff Corporation Berhad maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Malakoff Corporation Berhad you should be aware of, and 1 of them is a bit unpleasant.

If you're unsure about the strength of Malakoff Corporation 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.