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When close to half the companies operating in the Auto industry in Malaysia have price-to-sales ratios (or "P/S") above 1.1x, you may consider Tan Chong Motor Holdings Berhad (KLSE:TCHONG) as an attractive investment 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.
View our latest analysis for Tan Chong Motor Holdings Berhad
What Does Tan Chong Motor Holdings Berhad's Recent Performance Look Like?
Tan Chong Motor Holdings Berhad could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Tan Chong Motor Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Tan Chong Motor Holdings Berhad's Revenue Growth Trending?
Tan Chong Motor 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.
If we review the last year of revenue growth, the company posted a worthy increase of 7.0%. However, this wasn't enough as the latest three year period has seen an unpleasant 24% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 4.1% over the next year. That's not great when the rest of the industry is expected to grow by 17%.
With this information, we are not surprised that Tan Chong Motor Holdings Berhad is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What Does Tan Chong Motor Holdings 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.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Tan Chong Motor Holdings Berhad's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.