With a price-to-sales (or "P/S") ratio of 0.7x Magnum Berhad (KLSE:MAGNUM) may be sending bullish signals at the moment, given that almost half of all the Hospitality companies in Malaysia have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. 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 Magnum Berhad
What Does Magnum Berhad's P/S Mean For Shareholders?
Recent times haven't been great for Magnum Berhad as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Magnum Berhad.
Is There Any Revenue Growth Forecasted For Magnum Berhad?
In order to justify its P/S ratio, Magnum Berhad would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 19% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 10% as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to expand by 6.8%, which paints a poor picture.
With this in consideration, we find it intriguing that Magnum Berhad's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. 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 Magnum Berhad's P/S
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Magnum Berhad's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Magnum Berhad's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.