IQ Group Holdings Berhad (KLSE:IQGROUP) Shares May Have Slumped 27% But Getting In Cheap Is Still Unlikely

Simply Wall St · 10/15 22:19

IQ Group Holdings Berhad (KLSE:IQGROUP) shares have had a horrible month, losing 27% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about IQ Group Holdings Berhad's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Malaysia is also close to 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for IQ Group Holdings Berhad

ps-multiple-vs-industry
KLSE:IQGROUP Price to Sales Ratio vs Industry October 15th 2024

How Has IQ Group Holdings Berhad Performed Recently?

For example, consider that IQ Group Holdings Berhad's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for IQ Group Holdings Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For IQ Group Holdings Berhad?

There's an inherent assumption that a company should be matching the industry for P/S ratios like IQ Group Holdings Berhad's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. As a result, revenue from three years ago have also fallen 15% 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 42% shows it's an unpleasant look.

With this in mind, we find it worrying that IQ Group Holdings Berhad's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From IQ Group Holdings Berhad's P/S?

IQ Group Holdings Berhad's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We find it unexpected that IQ Group Holdings Berhad trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for IQ Group Holdings Berhad (1 makes us a bit uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on IQ Group Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.