Khee San Berhad's (KLSE:KHEESAN) price-to-sales (or "P/S") ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Food industry in Malaysia have P/S ratios greater than 1.2x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Khee San Berhad
How Has Khee San Berhad Performed Recently?
Khee San Berhad certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Khee San Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Khee San Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Any Revenue Growth Forecasted For Khee San Berhad?
Khee San Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered an exceptional 69% gain to the company's top line. Revenue has also lifted 26% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 3.0% shows it's noticeably more attractive.
With this information, we find it odd that Khee San Berhad is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Key Takeaway
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.
We're very surprised to see Khee San Berhad currently trading on a much 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 assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.