Yahoo Finance Sarawak Cable Berhad (KLSE:SCABLE) Shares Fly 367% But Investors Aren't Buying For Growth
Sarawak Cable Berhad (KLSE:SCABLE) shareholders would be excited to see that the share price has had a great month, posting a 367% gain and recovering from prior weakness. The last month tops off a massive increase of 250% in the last year.
Even after such a large jump in price, Sarawak Cable Berhad's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Electrical industry in Malaysia, where around half of the companies have P/S ratios above 0.9x and even P/S above 3x are quite common. 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 Sarawak Cable Berhad
What Does Sarawak Cable Berhad's P/S Mean For Shareholders?
For instance, Sarawak Cable Berhad's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 Sarawak Cable Berhad's earnings, revenue and cash flow.
How Is Sarawak Cable Berhad's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Sarawak Cable Berhad's to be considered reasonable.
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 19%. This means it has also seen a slide in revenue over the longer-term as revenue is down 34% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this information, we are not surprised that Sarawak Cable Berhad is trading at a P/S lower than the industry. 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. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
The Key Takeaway
Despite Sarawak Cable Berhad's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Sarawak Cable Berhad confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
It is also worth noting that we have found 4 warning signs for Sarawak Cable Berhad (3 shouldn't be ignored!) that you need to take into consideration.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
