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When you see that almost half of the companies in the Energy Services industry in Malaysia have price-to-sales ratios (or "P/S") above 0.8x, Sapura Energy Berhad (KLSE:SAPNRG) looks to be giving off some buy signals with its 0.2x P/S ratio. 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 Sapura Energy Berhad
What Does Sapura Energy Berhad's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Sapura Energy Berhad has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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 Sapura Energy Berhad.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Sapura Energy Berhad would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 25% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Turning to the outlook, the next year should demonstrate some strength in company's business, generating growth of 3.9% as estimated by the four analysts watching the company. Meanwhile, the broader industry is forecast to contract by 3.1%, which would indicate the company is doing better than the majority of its peers.
With this information, we find it very odd that Sapura Energy Berhad is trading at a P/S lower than the industry. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.
The Key Takeaway
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of Sapura Energy Berhad's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.