JF Technology Berhad's (KLSE:JFTECH) Price Is Out Of Tune With Revenues
When you see that almost half of the companies in the Semiconductor industry in Malaysia have price-to-sales ratios (or "P/S") below 2.8x, JF Technology Berhad (KLSE:JFTECH) looks to be giving off strong sell signals with its 9.4x 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.
View our latest analysis for JF Technology Berhad
How JF Technology Berhad Has Been Performing
JF Technology Berhad has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for JF Technology Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is JF Technology Berhad's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as steep as JF Technology Berhad's is when the company's growth is on track to outshine the industry decidedly.
Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. As a result, it also grew revenue by 10% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 11% shows it's noticeably less attractive.
In light of this, it's alarming that JF Technology Berhad's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
What Does JF Technology Berhad's P/S Mean For Investors?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
The fact that JF Technology Berhad currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
We don't want to rain on the parade too much, but we did also find 2 warning signs for JF Technology Berhad (1 is potentially serious!) that you need to be mindful of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.