Sinostar PEC Holdings Limited's (SGX:C9Q) Popularity With Investors Is Clear

There wouldn't be many who think Sinostar PEC Holdings Limited's (SGX:C9Q) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Oil and Gas industry in Singapore is similar at about 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for Sinostar PEC Holdings

How Sinostar PEC Holdings Has Been Performing

For instance, Sinostar PEC Holdings' receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Sinostar PEC Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sinostar PEC Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 2.9% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to decline by 1.6% over the next year, which is just as bad as the company's recent medium-term revenue decline.

With this information, it might not be too hard to see why Sinostar PEC Holdings is trading at a fairly similar P/S in comparison. However, shrinking revenues are unlikely to lead to a stable P/S long-term, which could set up shareholders for future disappointment regardless. There is potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Final Word

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.

As expected, our analysis of Sinostar PEC Holdings confirms that the company's contraction in revenue over the past three-year years is a major contributor to its industry-matching P/S, given the industry is set to decline in a similar fashion. It would appear as though shareholders are comfortable with the current P/S ratio, as they seem to have confidence that future revenue will not result in any unfavourable surprises. However, we're slightly cautious about the company's ability to stay its recent medium-term course and resist further pain to its business from the broader industry turmoil. If the company's performance remains relatively stable, it's likely that the current share price will continue to find support.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Sinostar PEC Holdings (at least 2 which are significant), and understanding these should be part of your investment process.

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

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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.