Revenues Working Against Axiata Group Berhad's (KLSE:AXIATA) Share Price
When you see that almost half of the companies in the Wireless Telecom industry in Malaysia have price-to-sales ratios (or "P/S") above 2.8x, Axiata Group Berhad (KLSE:AXIATA) looks to be giving off some buy signals with its 1.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Axiata Group Berhad
How Has Axiata Group Berhad Performed Recently?
With revenue growth that's superior to most other companies of late, Axiata Group Berhad has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Axiata Group Berhad.How Is Axiata Group Berhad's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Axiata Group Berhad's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 37%. The strong recent performance means it was also able to grow revenue by 36% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 15% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 5.5% each year, which paints a poor picture.
With this in consideration, we find it intriguing that Axiata Group Berhad's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Final Word
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Axiata Group Berhad's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. 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.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Axiata Group Berhad (1 can't be ignored!) that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.