Yahoo Finance Parkson Holdings Berhad (KLSE:PARKSON) Surges 40% Yet Its Low P/S Is No Reason For Excitement
Parkson Holdings Berhad (KLSE:PARKSON) shares have continued their recent momentum with a 40% gain in the last month alone. The annual gain comes to 119% following the latest surge, making investors sit up and take notice.
Even after such a large jump in price, Parkson Holdings Berhad's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Multiline Retail industry in Malaysia, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for Parkson Holdings Berhad
How Has Parkson Holdings Berhad Performed Recently?
For instance, Parkson Holdings Berhad's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Parkson Holdings Berhad will help you shine a light on its historical performance.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
In order to justify its P/S ratio, Parkson Holdings Berhad would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered a frustrating 7.0% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 14% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 219% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
In light of this, it's understandable that Parkson Holdings Berhad's P/S would sit below the majority of other companies. 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.
What Does Parkson Holdings Berhad's P/S Mean For Investors?
The latest share price surge wasn't enough to lift Parkson Holdings Berhad's P/S close to the industry median. 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 Parkson Holdings Berhad maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. 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.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Parkson Holdings Berhad (2 don't sit too well with us!) that you need to be mindful of.
If you're unsure about the strength of Parkson 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.
