A Piece Of The Puzzle Missing From Kencana Agri Limited's (SGX:BNE) 27% Share Price Climb

Despite an already strong run, Kencana Agri Limited (SGX:BNE) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 290% in the last year.

Although its price has surged higher, there still wouldn't be many who think Kencana Agri's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Singapore's Food industry is similar at about 0.8x. 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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Check out our latest analysis for Kencana Agri

How Has Kencana Agri Performed Recently?

Recent times have been quite advantageous for Kencana Agri as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, 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 Kencana Agri's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Kencana Agri?

In order to justify its P/S ratio, Kencana Agri would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 44%. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 3.7% shows it's noticeably more attractive.

With this information, we find it interesting that Kencana Agri is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Kencana Agri appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Kencana Agri currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Kencana Agri (1 shouldn't be ignored!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.