Vallianz Holdings Limited's (Catalist:WPC) price-to-sales (or "P/S") ratio of 0.2x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Energy Services industry in Singapore have P/S ratios greater than 1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Vallianz Holdings
How Has Vallianz Holdings Performed Recently?
Vallianz Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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 Vallianz Holdings' earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Vallianz Holdings would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company grew revenue by an impressive 133% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 21% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's an unpleasant look.
With this information, we are not surprised that Vallianz Holdings 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. 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 Vallianz Holdings' P/S
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.
Our examination of Vallianz Holdings 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. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.