There wouldn't be many who think W T K Holdings Berhad's (KLSE:WTK) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Forestry industry in Malaysia is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for W T K Holdings Berhad
How Has W T K Holdings Berhad Performed Recently?
Revenue has risen firmly for W T K Holdings Berhad recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. 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 W T K Holdings Berhad's earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, W T K Holdings Berhad would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 16%. Still, revenue has fallen 8.0% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
In contrast to the company, the rest of the industry is expected to grow by 7.4% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this in mind, we find it worrying that W T K Holdings Berhad's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
What Does W T K Holdings Berhad's P/S Mean For Investors?
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.
The fact that W T K Holdings Berhad currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.