Quality Concrete Holdings Berhad's (KLSE:QUALITY) Business And Shares Still Trailing The Industry
When close to half the companies operating in the Basic Materials industry in Malaysia have price-to-sales ratios (or "P/S") above 1.4x, you may consider Quality Concrete Holdings Berhad (KLSE:QUALITY) as an attractive investment with its 0.5x 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 Quality Concrete Holdings Berhad
How Quality Concrete Holdings Berhad Has Been Performing
As an illustration, revenue has deteriorated at Quality Concrete Holdings Berhad over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Quality Concrete Holdings Berhad will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Quality Concrete Holdings Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The Low P/S?
The only time you'd be truly comfortable seeing a P/S as low as Quality Concrete Holdings Berhad's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a frustrating 6.0% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to grow by 3.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this information, we are not surprised that Quality Concrete Holdings Berhad is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
The Bottom Line On Quality Concrete Holdings Berhad's P/S
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
It's no surprise that Quality Concrete Holdings Berhad maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
You need to take note of risks, for example - Quality Concrete Holdings Berhad has 4 warning signs (and 3 which are potentially serious) we think you should know about.
If you're unsure about the strength of Quality Concrete Holdings Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.