Revenues Working Against Chemical Industries (Far East) Limited's (SGX:C05) Share Price

When you see that almost half of the companies in the Chemicals industry in Singapore have price-to-sales ratios (or "P/S") above 1.3x, Chemical Industries (Far East) Limited (SGX:C05) looks to be giving off some buy signals with its 0.7x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Chemical Industries (Far East)

How Chemical Industries (Far East) Has Been Performing

As an illustration, revenue has deteriorated at Chemical Industries (Far East) over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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 out of 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 Chemical Industries (Far East)'s earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Chemical Industries (Far East)?

In order to justify its P/S ratio, Chemical Industries (Far East) would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 38% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Chemical Industries (Far East)'s P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Chemical Industries (Far East)'s P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that Chemical Industries (Far East) maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Chemical Industries (Far East) (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If you're unsure about the strength of Chemical Industries (Far East)'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.