MSM Malaysia Holdings Berhad's (KLSE:MSM) 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 1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for MSM Malaysia Holdings Berhad
What Does MSM Malaysia Holdings Berhad's Recent Performance Look Like?
MSM Malaysia Holdings Berhad's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so 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 MSM Malaysia Holdings Berhad.
Do Revenue Forecasts Match The Low P/S Ratio?
MSM Malaysia Holdings 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.
Taking a look back first, we see that the company managed to grow revenues by a handy 9.3% last year. The latest three year period has also seen a 26% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 3.5% during the coming year according to the dual analysts following the company. While this isn't a particularly impressive figure, it should be noted that the the industry is expected to decline by 2.7%.
With this information, we find it very odd that MSM Malaysia Holdings Berhad is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the contrarian forecasts and have been accepting significantly lower selling prices.
The Final Word
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that MSM Malaysia Holdings Berhad currently trades on a much lower than expected P/S since its growth forecasts are potentially beating a struggling industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. It appears many are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.