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When you see that almost half of the companies in the Food industry in Malaysia have price-to-sales ratios (or "P/S") above 1x, TPC Plus Berhad (KLSE:TPC) looks to be giving off some buy signals with its 0.2x P/S ratio. 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 TPC Plus Berhad
How TPC Plus Berhad Has Been Performing
Recent times have been quite advantageous for TPC Plus Berhad as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on TPC Plus Berhad will help you shine a light on its historical performance.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
TPC Plus 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.
If we review the last year of revenue growth, the company posted a terrific increase of 38%. The strong recent performance means it was also able to grow revenue by 87% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to shrink 2.7% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.
In light of this, it's quite peculiar that TPC Plus Berhad's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Bottom Line On TPC Plus Berhad's P/S
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Upon analysing the past data, we see it is unexpected that TPC Plus Berhad is currently trading at a lower P/S than the rest of the industry given that its revenue growth in the past three-year years is exceeding expectations in a challenging industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching this positive performance. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. It appears many are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.