Improved Revenues Required Before Parkson Holdings Berhad (KLSE:PARKSON) Stock's 40% Jump Looks Justified
Despite an already strong run, Parkson Holdings Berhad (KLSE:PARKSON) shares have been powering on, with a gain of 40% in the last thirty days. The annual gain comes to 119% following the latest surge, making investors sit up and take notice.
In spite of the firm bounce in price, Parkson Holdings Berhad may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Multiline Retail industry in Malaysia have P/S ratios greater than 1x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Parkson Holdings Berhad
How Has Parkson Holdings Berhad Performed Recently?
As an illustration, revenue has deteriorated at Parkson Holdings Berhad over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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.
Is There Any Revenue Growth Forecasted For Parkson Holdings Berhad?
The only time you'd be truly comfortable seeing a P/S as low as Parkson Holdings Berhad's is when the company's growth is on track to lag the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.0%. As a result, revenue from three years ago have also fallen 14% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 219% shows it's an unpleasant look.
With this in mind, we understand why Parkson Holdings Berhad's P/S is lower than most of its industry peers. 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 Key Takeaway
Parkson Holdings Berhad's stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Parkson Holdings Berhad confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Parkson Holdings Berhad (2 are potentially serious!) that you should be aware of before investing here.
If these risks are making you reconsider your opinion on Parkson Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
