There wouldn't be many who think Ralco Corporation Berhad's (KLSE:RALCO) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Packaging industry in Malaysia is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for Ralco Corporation Berhad
How Ralco Corporation Berhad Has Been Performing
Ralco Corporation Berhad has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.
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 Ralco Corporation Berhad's earnings, revenue and cash flow.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, Ralco Corporation Berhad would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. As a result, it also grew revenue by 10% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 18% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this in mind, we find it intriguing that Ralco Corporation Berhad's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
What Does Ralco Corporation Berhad's P/S Mean For Investors?
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 Ralco Corporation Berhad's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.