AE Multi Holdings Berhad's (KLSE:AEM) Shares Bounce 33% But Its Business Still Trails The Industry

AE Multi Holdings Berhad (KLSE:AEM) shareholders have had their patience rewarded with a 33% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.7% in the last twelve months.

Although its price has surged higher, considering around half the companies operating in Malaysia's Electronic industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider AE Multi Holdings Berhad as an solid investment opportunity with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for AE Multi Holdings Berhad

What Does AE Multi Holdings Berhad's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at AE Multi 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.

Although there are no analyst estimates available for AE Multi Holdings 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 AE Multi Holdings Berhad's Revenue Growth Trending?

AE Multi Holdings Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. The last three years don't look nice either as the company has shrunk revenue by 27% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 8.1% 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 AE Multi 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. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On AE Multi Holdings Berhad's P/S

AE Multi Holdings Berhad's stock price has surged recently, but its but its P/S still remains modest. 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.

It's no surprise that AE Multi Holdings Berhad maintains its low P/S off the back of its sliding revenue over the medium-term. 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.

Before you settle on your opinion, we've discovered 2 warning signs for AE Multi Holdings Berhad that you should be aware of.

If these risks are making you reconsider your opinion on AE Multi 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.