When close to half the companies in the Logistics industry in Malaysia have price-to-sales ratios (or "P/S") below 0.6x, you may consider GDEX Berhad (KLSE:GDEX) as a stock to avoid entirely with its 2.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for GDEX Berhad
What Does GDEX Berhad's Recent Performance Look Like?
GDEX Berhad could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Keen to find out how analysts think GDEX Berhad's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Revenue Growth Forecasted For GDEX Berhad?
In order to justify its P/S ratio, GDEX Berhad would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered a frustrating 5.0% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Turning to the outlook, the next year should generate growth of 30% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.
With this in mind, it's not hard to understand why GDEX Berhad's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
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.
Our look into GDEX Berhad shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for GDEX Berhad with six simple checks.