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When close to half the companies operating in the Food industry in Malaysia have price-to-sales ratios (or "P/S") above 1.1x, you may consider NPC Resources Berhad (KLSE:NPC) as an attractive investment with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for NPC Resources Berhad
How NPC Resources Berhad Has Been Performing
NPC Resources Berhad has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on NPC Resources Berhad will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on NPC Resources Berhad's earnings, revenue and cash flow.
Is There Any Revenue Growth Forecasted For NPC Resources Berhad?
In order to justify its P/S ratio, NPC Resources Berhad would need to produce sluggish growth that's trailing the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 8.7%. This was backed up an excellent period prior to see revenue up by 82% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
In contrast to the company, the rest of the industry is expected to decline by 2.4% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.
With this information, we find it very odd that NPC Resources Berhad is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
What We Can Learn From NPC Resources Berhad's P/S?
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.
Upon analysing the past data, we see it is unexpected that NPC Resources Berhad is currently trading at a lower P/S than the rest of the industry given that its revenue growth in the past three-year years is exceeding expectations in a challenging industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. It appears many are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.